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Last updated on Tuesday, July 15, 2014
(NEW YORK) - Citigroup is going to pay $7 billion to settle a federal investigation into how it handled risky subprime mortgages.
The settlement, which US Attorney General Eric Holder says includes a record $4 billion civil penalty, stems from the sale of "toxic" securities that helped fuel the great recession and devastated the economy in 2008.
The settlement also includes $2.5 billion to bring relief to homeowners and communities affected by Citibank's fraudulent activities. But the attorney general says it's impossible to make all of the homeowners affected by Citibank's actions whole again.
"Citigroup was able to expand its market share and also to increase its 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," said Holder.
The attorney general and his team said there will be announcements about cases against other financial institutions soon. While no one is going to jail based on today's announcement, Holder did say that Citibank and its employees could still face criminal charges in the future.
"What we try to do is to hold the institution and the individuals accountable, and to do what we can to bring some degree of relief to the people whose lives were affected. The reality is that for substantial numbers of people, we will not be able to make them whole. But we have constructed a settlement here that I think gives us the means to effect potentially hundreds of thousands of people in a positive way," Holder added.
Also, $500 million will go to several states and the Federal Deposit Insurance Corp.
The settlement helps Citi avert a civil suit by the Justice Department and mirrors similar settlement agreements made by JP Morgan Chase and other lenders in recent years.
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