Wall Street titan hit with $5.1 billion in penalties over shoddy mortgage bonds

by Ryan Smith11 Apr 2016
 Goldman Sachs will pay $5.1 billion to settle a probe of its handling of mortgage-backed securities.

The government had alleged that Goldman Sachs didn’t properly vet loans before selling them to investors as high-quality bonds, according to a Bloomberg report. Goldman Sachs will pay a civil penalty of $2.39 billion, make $875 million in cash payments and provide $1.8 billion in consumer relief, according to the Justice Department.

“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,” Acting Associate Attorney General Stuart Delery said in a statement today.

Today’s resolution is the fifth multibillion-dollar settlement with a big bank related to the government’s effort to hold financial institutions accountable for their role in the 2008 economic meltdown, Bloomberg reported.

The settlement also includes a “statement of facts,” to which Goldman has agreed, according to the Justice Department. The statement describes how the bank “made false and misleading representations to prospective investors” about the quality of the loans it securitized and how it would protect mortgage-bond investors from harm.

“Goldman Sachs had a fiduciary responsibility to its investors, which they blatantly sidestepped,” said Rene Febles, deputy inspector general for investigation at the Federal Housing Finance Agency’s Office of the Inspector General. “They knowingly put investors at risk, and in so doing contributed significantly to the financial crisis. The losses caused by this irresponsible behavior deeply affected not only financial institutions but also taxpayers, and one can only hope that Goldman Sachs has learned the difference between risk and deceit.”
 
 

COMMENTS

  • by Gman | 4/11/2016 3:06:10 PM

    This won't penalize Sachs at all. They will recoup this fine from there customers. Let's quit fining these companies and start holding people accountable and putting them in jail.

  • by BAILEY M CAMPBELL ABBM | 4/11/2016 4:10:35 PM

    It's NOT their JOB to VET the mortgages. The investor sets the guidelines and it's the lenders job to VET the mortgages prior to selling them to the investor. Where do all those mortgages come from to be sold off on the market? INVESOTRS such as but not necessarily Fannie Mae, Freddy Mac, ect. Securities companies are not required to have underwriters for mortgage! Nor do they have to have a mortgage mortgage originators license!!!

    Further, most investors like Fannie Mae have to come with an approved/eligible report from Fannie Mae it's self prior to purchase any mortgage. Put the responsibility of these bad CMO's on the original purchasing investor who wrote the f'n guidelines! If they are bad mortgages then they are bad guidelines and never should have made it to the trading desk in the first place.

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