[JURIST] Citigroup, Inc. on Monday agreed to pay $7 billion to settle a federal inquiry into mortgage-backed securities sold by the bank prior to the country’s financial crisis. The deal, which involves one of the largest cash penalties [NYT report] ever paid to settle such allegations, includes [WSJ report] a $4 billion civil penalty to the US Department of Justice (DOJ) [official website] and $2.5 billion reserved for “consumer relief,” with $180 million in financing to go towards building affordable rental housing. The DOJ argued that Citigroup chose to ignore warnings that many of the loans it packaged had problems, citing an internal e-mail in which a Citigroup trader wrote “went thru Diligence Reports and think that we should start praying. … I would not be surprised if half of these loans went down.” Despite the e-mail, the loans were securitized by the bank. Attorney General Eric Holde made clear that the settlement does not protect Citigroup or its employees from of criminal charges, though he did not say whether the government was pursuing such charges.
Several banks have faced legal challenges [JURIST backgrounder] stemming from the financial crisis of 2007-08. Last August the DOJ filed suit [JURIST report] against Bank of America (BOA) [corporate website], claiming that the corporation misled investors about securitized loans worth more than $850 million. In March 2013 Citigroup agreed to pay out $730 million [JURIST report] to settle a lawsuit brought by investors claiming the financial services corporation misled investors about its condition during the financial crisis. In January 2013 BOA reached a $10 billion settlement [JURIST report] with Fannie Mae over faulty lending practices. In 2012 US Attorney Preet Bharara [official profile] filed a $1 billion civil lawsuit [JURIST report] against BOA in the US District Court for the Southern District of New York (SDNY), with similar claims that BOA subsidiary Countrywide Financial committed fraud in originating residential mortgages. Earlier that year BOA settled [JURIST report] a $2.43 billion class action lawsuit with investors over their $18.5 billion acquisition of Merrill Lynch. In July 2012 BOA agreed to pay $375 million [JURIST report] in a settlement with bond insurer Syncora Guarantee [corporate website] over claims that Syncora was misled into insuring toxic mortgage-backed securities of Countrywide Financial. Also that month a federal judge rejected [JURIST report] a motion by BOA to dismiss a shareholder lawsuit alleging BOA’s purposeful concealment of the bank’s exposure to billions of dollars in loan repurchase claims and its problematic reliance on an electronic loan registry.