U.S. reaches $5 billion settlement with Goldman Sachs over ‘serious misconduct’

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The U.S. Justice Department has agreed on a $5.06 billion settlement with investment banking and securities firm Goldman Sachs over the bank’s practices in the years leading up to the financial crisis.

The settlement announced on Monday relates to Goldman’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007. It follows similar settlements with other major firms such as JPMorgan Chase and the Bank of America.

“This resolution holds Goldman Sachs 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,” U.S. Acting Associate Attorney General Stuart F. Delery said in a statement.

The multi-billion dollar settlement includes a civil penalty of $2.385 billion, as well as $1.8 billion in relief in the form of loan forgiveness and financing for affordable housing to underwater homeowners, distressed borrowers and affected communities.

“Viewed in conjunction with the previous multi-billion-dollar recoveries that the department has obtained for similar conduct, this settlement demonstrates the pervasiveness of the banking industry’s fraudulent practices in selling RMBS,” said Benjamin Mizer, the head of the Justice Department’s Civil Division.

The $2.385 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. The settlement preserves the government’s ability to bring criminal charges against Goldman, and does not release any individual from potential criminal or civil liability.

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