Citigroup Inc. will pay $7 billion to resolve federal and state civil claims related to Citigroup’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) prior to January 1, 2009.
The settlement includes a $4 billion civil penalty – the largest penalty to date under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
Citigroup was represented by Brad Karp, Theodore Wells, Bruce Birenboim and Susanna Buergel of Paul Weiss in New York.
As part of the settlement, Citigroup acknowledged it made serious misrepresentations to the public – including the investing public – about the mortgage loans it securitized in RMBS.
The resolution also requires Citigroup to 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.
The Justice Department said the settlement does not absolve Citigroup or its employees from facing any possible criminal charges.
“The bank’s misconduct was egregious,” said Attorney General Eric Holder. “And under the terms of this settlement, the bank has admitted to its misdeeds in great detail. The bank’s activities shattered lives and livelihoods throughout the country and around the world. They contributed mightily to the financial crisis that devastated our economy in 2008. While Citigroup was not alone in its willingness to ignore internal warnings and disregard the law in order to defraud consumers and investors, as a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits. They did so at the expense of millions of ordinary Americans and investors of all types – including other financial institutions, universities and pension funds, cities and towns, and even hospitals and religious charities. Ultimately, these investors suffered billions of dollars in losses when Citi’s false and fraudulent claims came crashing down.”
Public interest groups were not happy with the settlement.
“The settlement shows again that the Department of Justice is not serious about punishing Wall Street or holding it accountable for its crimes in causing the worst financial crash since 1929 and the worst economy since the Great Depression of the 1930s,” said Dennis Kelleher of Better Markets in Washington, D.C.
“The Department of Justice brags about and wants everyone to focus on the $7 billion settlement dollar amount, but that amount is meaningless without disclosure of the key information about how many hundreds of billions of dollars Citigroup made, how many tens of billions investors lost, how many billions in bonuses were pocketed, which executives were involved and what positions they now have with the bank,” Kelleher said.
“The Department’s thick packet of self-serving public relations spin cannot hide the fact that it has again failed to disclose any meaningful information about Wall Street’s massive, systemic, illegal fraudulent conduct. This not only prevents the public from knowing if Citigroup was held accountable for its crimes, but, very importantly, it also prevents anyone from scrutinizing the Department’s backroom deal making with Wall Street’s biggest banks.”
“This settlement is also worse than the deal the Department cut with JP Morgan Chase and the conduct settled here is worse than Goldman’s Abacus deal — settled by the SEC. The Department’s deal here gives Citigroup immunity not only for its fraudulent RMBS subprime mortgage business, but also for its massive ‘designed-to-fail’ CDO derivatives business, which alone generated tens if not hundreds of billions of dollars in profits.”
“In fact, Citigroup was the largest worldwide placement agent for CDOs in 2007. But, the Department apparently threw that immunity in for Citigroup at the last minute, literally within the last few weeks, without any investigation, and for little if any payment. That presumably is why the Department failed to mention this massive immunity-gift in its press release.”
“Citigroup, the Wall Street bank that received the largest amount of Federal bailouts to prevent its bankruptcy in 2008 — almost $500 billion — was a conveyor belt for toxic securities throughout the world and is now being handed another big bailout by the government: a sweetheart immunity deal and ongoing concealment of how its executives, officers and staff defrauded the American people and almost caused a second Great Depression.”
“The Department continues to think it can fight crime on Wall Street with press releases and fool the American public with self-serving spin,” Kelleher said. “But, as a recent poll conducted for Better Markets proves, the American people are not so easily fooled — 89% of the public rates the federal government’s efforts to hold Wall Street accountable as ‘only fair’ or ‘poor.’ The Department’s actions in this settlement with Citigroup confirm the wisdom of the American people.”
“This settlement again confirms the indefensible double standard of justice the Department has established by treating Wall Street’s biggest, richest, most politically connected banks more favorably than anyone else. History is going to judge the Department harshly for not only letting Wall Street off, but for letting the American people down.”
Public Citizen’s Bart Naylor said that “Citi helped fuel the housing bubble that ultimately crashed the American economy, displacing millions of Americans from their homes and jobs.”
“This settlement does little to repair that damage,” Naylor said. “What should be a painful moment for an institution that trades on trust has become simply a parenthetical in a quarterly press conference about its earnings.”
Public Citizen’s Lisa Gilbert said that while Holder judged Citi’s actions to be “egregious,” “no individuals are being held to account, the bank is not being charged with any criminal activity, the corporation faces no review of its bank charter and business continues in its offices spanning 180 countries.”
“Attorney General Holder says that the settlement doesn’t absolve Citi or Citi officials of possible criminal charges,” Gilbert said. “But the track record of the Department of Justice offers little indication that individuals or the company will be held accountable. We need more transparency on how and why these decisions are made.”