The Justice Department said Goldman admitted in the settlement that it made “false and misleading representations to prospective investors” about mortgage-backed securities it was selling.
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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 pact includes a $2.3 billion federal penalty levied by the Justice Department, $875 million to end claims by several other federal agencies and states including NY, and $1.8 billion in help to struggling borrowers.
The agreement, smaller than deals reached with several of Goldman’s Wall Street counterparts, is the latest in a series of multi-billion-dollar civil settlement arising from the economic meltdown in which millions of Americans lost their homes to foreclosure or found themselves jobless.
“Today’s settlement is yet another acknowledgment by one of our leading financial institutions that it did not live up to the representations it made to investors”, said U.S. Attorney Benjamin B. Wagner of the Eastern District of California. Three states received payouts, with NY winning the most at $190 million.
Even when the percentage of problematic loans in pools sampled by it vendors indicated that the unsampled portions of the pools likely contained additional such loans, Goldman typically did not increase the size of the sample or review the unsampled portions of the pools to identify and eliminate any additional such loans.
The due diligence of the bank in one of its August of 2006 RMBS reported unusually high numbers of loans with compliance and credit defects, according to the just released statement.
Investors suffered billions of dollars in losses from the securities bought during the period, the department said. As a result, Attorney General Schneiderman secured a settlement that preserved a wide range of claims for further investigation and prosecution.
The resolution finalized today by the DOJ was previously mentioned by Goldman Sachs on January 14, when it was subject to negotiation of a definitive documentation.
“This settlement is a victory for Goldman”. Goldman set aside $1.95 billion for legal and litigation expenses in the fourth quarter, and $4.01 billion for all of 2015, more than double the totals for the two previous years combined.
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Goldman also acknowledged a Justice Department statement of facts describing how the firm misled investors.
