After turning a blind eye to a fraud scheme amongst its employees, a Wall Street firm has agreed to pay a $25 million settlement to the federal government.

Jefferies, the New York-based investment banker and broker-dealer group, had been accused by federal officials of overcharging investors for residential mortgage-backed securities.

“The sole purpose of this deception was to increase profit to Jefferies and its employees. Not only did management tolerate these illegal practices, but the culture within the division encouraged the fraudulent conduct," U.S. Attorney Deirde M. Daly said in a statement.

Authorities alleged Jefferies employees began lying in 2009 to buyers about sellers' asking prices, while also lying to sellers about the buyers' prices.

In addition, the employees hid that they were selling mortgage-backed securities to charge buyers extra and unallowable commissions, according to the inspector general for the federal bank bailout.

Managers in Jefferies' fixed income division were aware of the scheme, but did nothing to stop it, federal authorities said.

Mortgage-backed securities played a key role in the 2008 financial collapse. The Wall Street bailout, formally known as the Troubled Asset Relief Program, backed the securities with billions of dollars in public money to help shore up the economy.

"The fraudulent activity" at Jefferies "continued, and ultimately, six of eight managers of federal taxpayer TARP funds were overcharged," according to the IG's report.

The $25 million agreement, which was signed in late January, includes requirements that Jefferies pay $11 million in restitution to victims and up to $4.2 million to the U.S. Securities and Exchange Commission.

The criminal investigation of the employees involved at Jefferies is "active and ongoing," according to the IG's report.