Catch of the Week: RBS Agrees to Pay $4.9 Billion
This week’s Department of Justice “Catch of the Week” goes to The Royal Bank of Scotland Group plc (RBS), who agreed to pay $4.9 billion to settle claims that RBS misled investors in the underwriting and issuing of residential mortgage-backed securities (RMBS) between 2005 and 2008. See DOJ Press Release.
The settlement’s statement of facts details how RBS routinely made misrepresentations and omissions to investors about the significant risks associated with its RMBS. RBS allegedly failed to disclose systemic problems with loan underwriting, changed due diligence findings without justification, provided investors with inaccurate loan data, and failed to disclose agreements with originators to cap the number of materially risky loans that RBS could exclude from its securities.
According to the DOJ press release, RBS earned hundreds of millions of dollars through this RMBS scheme and in the process pushed the risk of these loans on “unsuspecting investors across the world, including non-profits, retirement funds, and federally-insured financial institutions.” Acting Associate Attorney General Jesse Panuccio spoke to the impact of RBS’s fraud, stating:
Many Americans suffered lasting economic harm as a result of the 2008 financial crisis. This settlement holds RBS accountable for serious misconduct that contributed to that financial crisis, and it sends an important message that the Department of Justice will pursue financial institutions that illicitly harm the American economy and our consumers.
The settlement of $4.9 billion is the largest penalty the Justice Department has imposed to a single entity under the under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 for misconduct relating to the financial crisis.
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