At the height of the catastrophic subprime mortgage boom in 2005, loan underwriter Coleen Colombo tried repeatedly to tell her bosses at BNC Mortgage LLC that she was seeing fraudulent loan documents getting approved in the Sacramento office where she worked. Instead of getting rewarded, however, Colombo said she was ignored and then sexually harassed until she quit that same year.
Immediately, Colombo and five other women, who had also fled her office with strikingly similar stories of mortgage fraud and sexual harassment, filed a lawsuit. All were represented by Gary Gwilliam and his Oakland-based firm, Gwilliam Ivary Chiosso Cavalli & Brewer.
Little did any of them realize that it would be 14 long years before they would finally get the satisfaction of a $5 million settlement of their claims, which came in August of 2019. The reason for the delay? BNC was owned by Lehman Brothers, and partway into the women’s litigation, the proceedings got mired in the largest bankruptcy in U.S. history.
“Year after year after year would go by, you know, and obviously I would get depressed and wonder if it was ever going to happen,” said Colombo after receiving her money.
Colombo’s life went into a financial and personal tailspin after she lost her job, resulting in her moving to Oklahoma to work on a relative’s ranch.
Over the years, there were times when Colombo wanted to throw in the towel and take one of Lehman’s lowball offers, but she was sustained by Gwilliam and his partner on the case, Randall Strauss. Gwilliam even loaned Colombo money to get her through hard times.
“This is the longest case I’ve worked on in a very long career,” said Gwilliam, who refused to give up even as others in his own law firm questioned the wisdom of continuing. “The most important part of this for me was getting justice for our clients—vindicating their persistence, their courage.”
‘This is going to come back to bite you’
Colombo was an experienced underwriter in 2003 when she started working in BNC Mortgage’s Sacramento office. She initially thrived in her position, getting a top rating of “exceeds expectations” on one of her performance reviews. Her home was in nearby Roseville, where she lived with her husband and their young daughter. Life was good.
The picture turned dark in 2005, however, when she began receiving application files from one loan officer containing what appeared to her to be fabricated pay stubs and bank statements. In some instances, she said dollar amounts for income were obviously whited out, with new information typed in.
Colombo reported the apparent fraud to her manager, but he refused to take action.
So Colombo escalated her complaints to the regional vice president of operations, the regional sales manager, and the regional account manager. Nobody seemed to take Colombo’s complaints seriously, and to her dismay, the flow of suspect loan documents continued unabated.
“They said, ‘Quit calling us. Quit bugging us,’” Colombo recalled.
Her manager took her out to lunch and offered to pay her to look the other way and approve his loans. Colombo declined the offer.
Colombo’s physical and emotional health began to suffer, and a doctor recommended she take a short leave from work. When Colombo returned, though, the situation had not improved. Her manager told her once that his co-manager wanted her fired for making fraud complaints. Then both men ordered her to approve documents she believed were falsified. Again, she would not comply. Yet her stand on principle had little effect; the documents were simply repackaged and approved by someone else in the office.
That was about the time when Colombo said the sexual harassment began. A new male employee in the office arrived in March of 2005 and launched what Colombo and her co-plaintiffs described as a campaign of sexual harassment against them. The six women did not learn until later about each others’ experiences or the fact that they had all been alerting BNC higher-ups about possible fraud.
The new guy started invading Colombo’s personal space, entering her office, rubbing himself against her, looking for ways to touch her, she said. The other women similarly reported that the man inappropriately touched them, looked down their blouses, made gestures simulating masturbation, and uttered racist or sexual remarks.
Colombo made a last-ditch call to the head of BNC’s human resources department. “I was basically begging them to help us,” she said. “I was saying, ‘Look, you know I’m not only trying to save myself here. I’m trying to save you guys. This is going to come back to bite you. These people aren’t going to be able to make their payments. They’re going to go into foreclosure.” It was to no avail, though, and when Colombo suggested that she might have to seek the advice of an attorney, the human resources manager abruptly ended the call.
Building a case, and sitting in limbo
By this time, the six women had been comparing notes. They had contacted Gwilliam, who drove to Sacramento to meet with them at a restaurant and discuss their options.
The breaking point came suddenly on September 2, 2005, when Colombo’s co-worker Linda Howard-James said the sexual harasser accosted her in the file room, pushed his body against hers, breathed down her neck, and pressed his genitals against her. Howard-James, a sexual assault survivor, reported suffering a panic attack and fleeing the office.
Five days later, on Sept. 7, Colombo and some of her fellow plaintiffs went to BNC’s offices and, with newspaper and television reporters on hand to document the event, resigned from their positions and delivered notices required before filing a lawsuit.
The six women—Colombo, Howard-James, Isabel Guajardo, Cheryl McNeil, Michelle Seymour, and Sylvia Vega—filed a complaint on Nov. 5, 2005, in Sacramento County Superior Court. They alleged that their whistleblowing led to discrimination, harassment, retaliation, and defamation, among other things, perpetrated by BNC and three male BNC employees, all of which created intolerable employment conditions that forced them to quit.
BNC immediately countered with a motion claiming that the women did not have a right to sue in court because they were compelled by agreements they signed when they were hired to pursue their claims through private arbitration.
It took until September 27 of 2007, and the hiring of an appellate lawyer, for Gwilliam’s firm to defeat that gambit.
Gwilliam’s team was soon back to interviewing witnesses, taking depositions, and managing other aspects of legal discovery in preparation for trial. What nobody knew at that time, however, was that their plans would soon be shredded by huge forces unleashed to a large degree by the very sorts of risky subprime mortgage lending practices that Colombo and her co-plaintiffs tried to expose.
On Sept. 15, 2008, amid a national wave of mortgage delinquencies, Lehman Brothers, a global investment banking company—and the owners of BNC Mortgage—declared bankruptcy, sending shockwaves through the global economy and triggering the fiercest recession in U.S. history since the Great Depression.
The lawsuit that Gwilliam’s firm was preparing to try on behalf of Colombo and her co-plaintiffs was thrown into a state of complete limbo for the next half-decade, only to be followed by another six years of fitful negotiations and frustrating mediation occurring in the shadow of a bankruptcy court.
Reaping riches, and turning a blind eye to fraud
For the big banks, the mortgage securitization practice had proved so lucrative that they snapped up subprime lenders so they could originate loans in-house to package up and sell. Lehman Brothers bought five subprime lenders, including BNC in 2004.
BNC subsequently became a juggernaut, with loan volume skyrocketing. The standards for approving home loans in BNC’s Sacramento office, meanwhile, came under assault as volume increased, with loans going to unqualified home buyers based on incomplete or fraudulent applications, according to Colombo and others.
Plaintiff Cheryl McNeill, for example, said she joined BNC in 2004 as an underwriter and late that year discovered loan files revealing fraudulent activities, including falsified tax returns and bank statements, like obviously false pay stubs. When McNeill asked questions about the loan files, she said the loan officer to whom she reported took work away from her. Some of her co-plaintiffs also said their work was taken from them when they raised similar concerns.
Like Colombo, McNeil said she brought her discoveries to the attention of regional management, but was ignored. Instead, she was written up for poor production, a result of not being given files to process, she said. At the same time, McNeill echoed the other women’s stories about being sexually, and in some cases racially, harassed by the same BNC manager Colombo said was harassing her. McNeill said that when she complained, the office manager laughed off the harassing behavior as “fun and games.”
The numbers explain why BNC might see no percentage in addressing the women’s concerns. The year after Colombo left, BNC issued a staggering $14 billion in loans, making it one of the top 20 generators of subprime mortgages in the nation. By 2007, Lehman Brothers was the largest issuer of mortgage-backed securities among the country’s leading investment banks. Also that year, Lehman Brothers posted record earnings of $4.2 billion, and it was ranked by Fortune Magazine as the #1 “Most Admired Securities Firm.” Lehman Brothers CEO Richard Fuld’s compensation for the year was $34.38 million.
While Fuld was reaping riches, Colombo and her fellow plaintiffs all struggled to find work and suffered emotional and financial hardships, sometimes to the extreme.
Colombo, previously earning about $90,000 a year, said she was unable to find another job as an underwriter in the Sacramento area because of her reputation as a whistleblower. Without a college degree, her prospects for finding a position with a similar income seemed slim. Colombo’s car was repossessed in 2006, she lost her home in foreclosure, and her marriage fell apart. Depression settled in, along with drinking, and Colombo was hospitalized as a result of mixing alcohol and naproxen.
“One of the biggest things it affected was my self-worth and self-confidence,” Colombo said. “I felt that I had lost myself and my life. It was pretty bad.”
Completely broke, Colombo went on welfare, for years living out of various hotels with her young daughter. After Colombo’s mother died, Colombo in desperation packed her cat and what belongings she could in her car and moved with her daughter so she could live and work on her aunt’s cattle ranch outside of a small town about 80 miles south of Oklahoma City. Colombo was a native of the Sacramento region and did not know her aunt well, but she felt she had no place else to turn. Nothing much at this point was happening with the lawsuit.
Several attempts to mediate a settlement took place between the summer of 2013 and spring of 2015, but each time the offers from BNC fell far below Gwilliam’s and the plaintiff’s expectations. Each time, the women rejected BNC’s inadequate offers to settle.
“Each mediation was a big buildup in work and emotions,” Strauss said. “Each time it was deflating.”
‘We did the right thing, even though we went through hell’
Over the next four years, Gwilliam refused to give up on Colombo’s case even as others in his own law firm questioned whether it might not be smart to get out of the case, which was costing the firm in loan payments and other expenses.
“It was a drain on our firm to have this much time, effort, and money out on a case for so long,” Strauss said. “There were offers where we as a firm could have cut losses, but it wouldn’t have done our clients any good. Some attorneys might have done that because it just seemed hopeless,” he said. “Gary wouldn’t do that.”
Gwilliam tried unsuccessfully to get the case moved back to Sacramento County Superior Court, where he felt a jury would be sympathetic and the chances of winning a substantial award for his clients were best.
The two sides continued negotiating periodically, gradually getting closer in terms of potential settlement amounts.
It was during this period that Colombo wanted to throw in the towel and take whatever she could get, but Gwilliam talked her out of it and advanced her money.
“Sometimes I’ve thought about how it would have been different if we wouldn’t have had Gary and his law firm backing us. It’s like they were like our family, like our parents, holding our hands through everything, making it possible for me to be able to come out there and attend mediations or what have you,” Colombo said. “He just told me, ‘Coleen you’ve got to hang in there. You can’t settle for this. You’re not going to get a dime,’ ” Colombo said. “I trust them so much. There was a part of me that knew he was going to make this happen.”
When BNC made a motion to eliminate defamation claims from the suit, Gwilliam saw an opportunity to advocate for a settlement before the bankruptcy court judge and he went to New York City. The effort was effective; the judge put significant pressure on both sides to settle, and the result was a $5 million deal coming two months before yet another mediation session had been scheduled.
Colombo was at the farmhouse when she got a telephone call from Gwilliam telling her that a tentative settlement had been reached.
“It was almost like somebody is wrongfully imprisoned and they get word that the judge has determined they are getting out. I was screaming and crying with joy,” she said.
A big, fat check came in the mail not long after. Colombo quickly moved with her daughter into a rented home in the nearby town of Dunkin, paying up-front for a year and buying furniture to boot. Her plan was to stay in Dunkin until after Colombo’s daughter graduates in 2021 and decides where she would go to college, and then perhaps Colombo will buy a place—maybe even in California.
“The money guarantees that my daughter will be able to go to college and that I’ll be okay,” Colombo said.
Beyond the financial implications, Colombo says the emotional impact for her has been profoundly positive, giving her a sense of vindication and triumph after years of feeling shame and victimization. “I’m starting to feel a lot better about myself,” Colombo said. “It makes me feel like we did the right thing, even though we went through hell, 14 years of hell, to get here.”
For Gwilliam Ivary Chiosso Cavalli & Brewer, the ledger is mixed. The case was not a success when it came to making money for the firm. “It helped our clients. That’s the most important thing as far as I’m concerned,” Strauss said. “There’s always another case. But this was their only case.”
Gwilliam, for his part, takes strong satisfaction from the fact that he did not let his clients’ case get buried in Lehman’s bankruptcy proceedings, and that BNC’s representatives were not successful with their low-dollar settlement offers and warnings about other creditors sucking up the assets of the creditor trust fund.
“The vast majority of bankruptcies, people don’t get any money. Usually, you would not expect to get much or anything out of it. This case looked like it would have been dead. A lot of lawyers would have thrown in the towel and said, ‘There’s nothing there,’” Gwilliam said.
“Ultimately, we made them pay. Not as much as I would have liked, but $5 million is real money,” he said. “It has made a significant difference to our clients after all these years. They were heroes who persisted through a lot of adversity.”