Societe Generale to pay $50mn to settle US fraud claims

NEW YORK: Societe Generale (SOGN.PA) agreed to pay a $50 million civil fine and admit to misconduct to settle U.S. claims that it fraudulently concealed from investors the poor quality of residential mortgage-backed securities it marketed and sold. In a statement on Friday, the US Department of Justice said the French bank concealed problems in a $780 million debt issue it arranged in 2006, and which has since left investors with “significant losses” that may grow further.

The debt issue, SG Mortgage Securities Trust 2006OPT2, was backed by subprime loans from Option One Mortgage Corp, then a unit of tax preparer H&R Block Inc (HRB.N).

Societe Generale admitted to concealing how many of the loans were not underwritten properly and should not have been securitized, and that no borrowers owed more on their loans than their homes were worth.

The settlement papers quote from a senior Societe Generale banker who used a profanity in characterizing industrywide subprime lending practices at the time, and declared that “the whole process is a joke.”

US investigators were not amused.

“It was not a ‘joke,’” Robert Capers, the U.S. Attorney for the Eastern District of New York, said in a statement.

“SocGen’s acknowledgment of its misconduct in the securitization of SG 2006-OPT2 was a critical component of this resolution,” he added. “We will not tolerate investment banks making false representations to investors.”

Jim Galvin, a Societe Generale spokesman, said: “Societe Generale is pleased to have resolved this legacy matter involving a business that the firm exited in 2008.”

Two other European banks, Deutsche Bank AG (DBKGn. DE) and Credit Suisse Group AG (CSGN.S), completed respective $7.2 billion and $5.3 billion settlements this week.