Goldman Sachs will pay more than $5 billion in fines and penalties to resolve a housing bubble-era mortgage fraud case with federal and state governments, the Department of Justice announced Monday.
The announcement finalizes the deal to end an investigation into crisis-era mortgages that the bank announced in January.
The Justice Department said that the megabank would pay the penalty for misrepresenting the quality of loans packaged into securities that were sold to investors between 2005-07.
Acting Associate Attorney General Stuart Delery said the settlement holds the bank “accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail.”
Christy Goldsmith Romero, the special inspector general for the TARP bailout, said that “Goldman took $10 billion in TARP bailout funds knowing that it had fraudulently misrepresented to investors the quality of residential mortgages bundled into mortgage-backed securities.”
Goldman Sachs did not admit guilt related to selling the mortgage-backed securities. Instead, it agreed to a list of agreed-upon facts about the securities, including that its employees told investors that the underlying loans met certain specifications when they didn’t.
The fine the bank will pay is $2.385 billion. It also will fork over $1.8 billion in other kinds of relief, including assistance to underwater homeowners and contributions for affordable housing. It also will pay $875 million to resolve state claims.
In January, Goldman Sachs CEO Lloyd Bankfein said that the bank was “pleased” to resolve the inquiry.
At least one Wall Street critic, on the other hand, argued that the settlement was too light a punishment. It is “just more of the same non-punishment, non-accountability ritual that will do nothing to stop the Wall Street crime spree,” said Dennis Kelleher, president of the nonprofit group Better Markets. Noting that no employees at Goldman Sachs were punished and that the penalty will be in part tax-deductible, Kelleher said that this and other penalties are “so weak that they will actually incentivize more law breaking on Wall Street.”
The settlement relates to the investigation conducted by the Residential Mortgage-Backed Securities Working Group, the task force of U.S. attorneys offices and state attorneys general delegated to investigate subprime mortgage fraud.
Previously, Goldman paid more than $3 billion to settle claims related to mortgage-backed securities it sold to the government-sponsored enterprises Fannie Mae and Freddie Mac.
