WASHINGTON D.C. – The U.S. Justice Department announced Monday that it has reached a $7 billion settlement –the largest penalty of its kind — with Citigroup Inc. for misleading investors about securities containing toxic mortgages.
The settlement resolves federal and state civil claims that are related to the marketing and selling of residential mortgage-backed securities before Jan. 1, 2009, officials said.
The settlement doesn’t absolve Citigroup or its employees from facing possible criminal charges, officials noted.
“This historic penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi,” said Attorney General Eric Holder. “The bank’s activities contributed mightily to the financial crisis that devastated our economy in 2008. Taken together, we believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business. Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last.”
Citigroup acknowledged that it made serious misrepresentations to the public about the mortgage loans that were secured under the Financial Institutions Reform, Recovery and Enforcement Act, authorities said.
Under the settlement, Citigroup must provide relief to underwater homeowners, distressed borrowers and affected communities through a variety of means including financing affordable rental housing developments for low-income families in high-cost areas, officials states.
This settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s Residential Mortgage-Backed Securities Working Group, which has recovered $20 billion to date for American consumers and investors.
Here is how the $7 Billion will be spent:
- There will be $4.5 billion paid to settle federal and state civil claims by various entities.
- Citigroup will pay $4 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery and Enforcement Act and $208.25 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation .
- Citigroup will pay $102.7 million to settle claims by California; $92 million to settle claims by New York, $44 million to settle claims by Illinois, $45.7 million to settle claims by Massachusetts, and $7.35 to settle claims by Delaware.
“After nearly 50 subpoenas to Citigroup, Trustees, Servicers, Due Diligence providers and their employees, and after collecting nearly 25 million documents relating to every residential mortgage backed security issued or underwritten by Citigroup in 2006 and 2007, our teams found that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone,” said U.S. Attorney of the Eastern District of New York Loretta Lynch.
“The investors in Citigroup RMBS included federally-insured financial institutions, as well as a host of states, cities, public and union pension and benefit funds, universities, religious charities, and hospitals, among others. These are our neighbors in Colorado, New York and around the country, hard-working people who saved and put away for retirement, only to see their savings decimated.”
Financial Fraud Enforcement Task Force’s Residential Mortgage-Backed Securities Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the Mortgage-Backed Securities market that helped lead to the 2008 financial crisis.
The Mortgage-Backed Securities Working Group brings together more than 200 attorneys, investigators, analysts and staff from dozens of state and federal agencies including the Department of Justice, 10 U.S. Attorneys’ Offices, the FBI, the Securities and Exchange Commission and the Department of Housing and Urban Development.