Multinational Bank to Pay $1.435 Billion to Settle DOJ’s RMBS Fraud Suit

A large multinational bank recently agreed to pay $1.435 billion to settle a DOJ action alleging that the bank had defrauded investors in connection with the sale of residential mortgage-backed securities (RMBSs) in the lead-up to the 2008 financial crisis.

In 2018, DOJ filed suit against the bank and its US-based affiliates under the Financial Institutional Reform, Recovery, and Enforcement Act (FIRREA).  In connection with the bank’s sale of 40 RMBSs valued at over $41 billion between 2005 to 2007, DOJ alleged that the bank: 1) knew that lenders issuing the mortgages had ignored or violated required underwriting practices; 2) knew that loans had been supported by inaccurate and inflated property valuations; and 3) knew that loans had been originated in violation of consumer protection laws.  Despite this knowledge, DOJ alleged that the bank had misrepresented to investors that the loans had met the relevant underwriting guidelines, had been supported by accurate property appraisals, and had been originated in compliance with applicable laws and regulations.

Under the settlement, the bank will pay $1.435 in civil money penalties.  The bank neither admitted nor denied the allegations.

This settlement resolves the last of a number of similar actions by DOJ against banks and other entities for their roles in connection with creating and issuing RMBSs, which contributed to the 2008 financial crisis.  These suits collectively have resulted in more than $36 billion in civil money penalties.