Citigroup, Inc. To Pay $7B Settlement For Role In 2008 Financial Disaster
Officials and Citigroup, Inc. said in an effort to settle multiple state and federal government investigations, the company will pay $7 billion in consumer relief and cash regarding its sale of substandard mortgage investments during the subprime housing boom.
The company is paying the amount as follows: $4 billion in civil fines and $500 million in repayments for various losses like the public pension fund, and $2.5 billion in consumer relief.
Among several states sharing in the settlement is California, which is getting 102.7 million to offset the losses seen in the public pension funds. California Att. Gen. Kamala Harris’ office said is getting $90 million for consumer relief, which is more than all other states.
Citigroup’s agreement is one of several similar settlements Wall Street firms have made to answer to the charge that they packaged high-risk loans during the height of the housing boom to produce bonds they sold to investors throughout the world. Many small financial firms failed and significant losses were seen in many funds including public employee retirement funds and public pension funds.
According to U.S. Att. Gen. Eric Holder, JPMorgan Chase & Co. reached a settlement of $13 billion to settle mortgage-related claims back in November. He said more settlements were to come, noting that Citi wasn’t the first financial institute the Justice Department has held accountable for the collapse. He also said he would definitely not be the last company.
Officials with the Justice Department said it’s the largest penalty to be levied against a company under the 1989 federal financial fraud law. It comes after the two-year investigation and exhaustive negotiations.
Holder said the company learned of the catastrophic defects its employees had used to generate securities but withheld that information from investors. A Citi trader, from an internal email, said company officials should begin praying after a look at several thousands of mortgages the bank purchased back in 2007 that had material defects. The trader wrote that it was amazing some loans had closed.
Holder said the settlement doesn’t relieve Citigroup or individual parties from any future criminal charges. He said the activities of the bank shattered people’s lives and livelihoods, not just in the country, but around the world. The banks contributed a good part to the financial disaster that took place in 2008.
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