Citigroup Inc. (NYSE: C) agreed this week to pay $7 billion over claims that it had fraudulently deceived investors about mortgage-backed securities that soured in the prelude to the global economic crisis of the late 2000s. The deal, which was announced yesterday, represents the most expensive civil fraud penalty ever levied by the federal government against any institution.
Though, Citibank’s penalty is twice as much as what analysts had previously predicted, it is less than the $12 billion the institution was originally chased for by the U.S. Justice Department. Citibank is just one of several major financial institutions being chased by the Justice Department as a result of these loans, which had soured in the late 2000s, thus resulting in the major financial crisis that affected the United States from 2007 to 2009.
Most of these mortgage-backed securities were presented as being safe, even if the banks supposedly were cognizant of the possibility of risk.
Talks between Bank of America Corp. (NYSE: BAC) and the Justice Department have been at a stalemate recently. However, the Justice Department is dogged in pursuing these cases against banks, even with the Citigroup accord reached. According to Justice Department official Anthony West, the agency is “not letting up” and “not going away” as it continues its initiative to pursue the soured loans cases. West added that similar announcements of settlements may be confirmed in “the very near future.”
In a prepared statement, U.S. Attorney General Eric H. Holder Jr. described the record penalty as being “appropriate” in the light of the evidence suggesting Citi had acted maliciously in repackaging the securities. “Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitizing, the bank and its employees concealed these defects,” he added.