Citigroup Inc. has reached a deal with the US Justice Department to pay $7 billion to settle accusations it misled investors regarding shoddy mortgage-backed securities towards the financial meltdown. The firm will pay one of the largest civil fraud penalty ever slapped by the department.
The fine levied, which was announced on Monday, is more than twice the amount many analysts had forecast but less than the $12 billion the US government pursued in talks with Citi, the third-largest lender in the country.
The settlement was reached about six years after the height of the financial meltdown. It is one of the several investigations by the Justice Department into the offering and sale of risky mortgages.
Many of the securities were presented as safe, although the banks new they would collapse. The widespread crumbling of securities triggered the 2007-2009 financial crisis.
Bank of America Corp has been in talks with the Justice Department over similar accusations, but the negotiations have stalled in the recent past as the parties involved differ on proposed penalties.
“We’re not letting up, and we’re not going away. We will continue to pursue these cases,”an official of the Justice Department Tony West is quoted by Reuters as saying when announcing the Citigroup deal. He said similar announcements could be made very soon.
Citigroup admitted that it knew about substantial proportions of sample home loans that violated underwriting guidelines, which nevertheless the bank pooled into securities.
In one such deal in 2007, a Citigroup trader emailed colleagues he had seen a due diligence document on the poorest quality mortgages and told them they “should start praying.”
“The bank’s misconduct was egregious. As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits,” Attorney General Eric H. Holder Jr is quoted by the New York Times as saying in a statement.
To contact the reporter of the news: Yashu Gola at email@example.com
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