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 The settlement, which Goldman disclosed in January, stems from the
firm's conduct in packaging, securitization, marketing and sale of
residential mortgage-backed securities between 2005 and 2007, the
Justice Department said.
Investors suffered billions of dollars in losses from the securities
bought during the period, the department said.
The settlement comprises a $2.385 billion civil penalty and $1.8
billion in other relief, including funds for homeowners whose
mortgages exceed the value of their property, as well as distressed
borrowers. It also preserves the government's ability to bring
criminal charges against Goldman and does not release any
individuals from potential criminal or civil liability, the Justice
Department said.
In addition, Goldman will pay $875 million to resolve claims by the
New York and Illinois attorneys general, the National Credit Union
Administration and the Federal Home Loan Banks of Chicago and
Seattle.
A state and federal working group formed to investigate wrongdoing
in the pre-financial crisis mortgage-backed securities market
negotiated the settlement, said New York Attorney General Eric Schneiderman.
The group has reached settlements with five other major financial
institutions since 2012: J.P. Morgan Chase ($13 billion), Bank
of America ($16.6 billion), Citibank ($7 billion) and
Morgan Stanley ($3.2 billion).
"We are pleased to put these legacy matters behind us," a Goldman
spokesman said in a statement. "Since the financial crisis, we have
taken significant steps to strengthen our culture, reinforce our
commitment to our clients, and ensure our governance processes are
robust," he said.
Goldman also acknowledged a Justice Department statement of facts
describing how the firm misled investors.
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For example, Goldman's due diligence for one issue of 2006
mortgage-backed securities showed that some of the loan pools
reflected an “unusually high” percentage of loans with credit and
compliance programs, the Department said.
"How do we know that we caught everything?" asked a Goldman
committee tasked with reviewing and approving mortgage-backed
securities, according to the Justice Department. "We don't," a
Goldman manager said.
"Depends on what you mean by everything? Because of the limited
sampling... we don’t catch everything,” another Goldman manager
said.
Still, the committee approved the securities without requiring
additional due diligence, said the Justice Department, which did not
identify those involved.
(This version of the story corrects period of misconduct to
2005-2007, not 2007-2009, in second paragraph)
(Reporting by Suzanne Barlyn; Editing by Chizu Nomiyama and Dan
Grebler)
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