Cit­i­group avoid US charges over mort­gage bonds

The Pak Banker - - COMPANIES/BOSS -

US au­thor­i­ties have de­cided not to pur­sue crim­i­nal charges against any Cit­i­group Inc ex­ec­u­tives or em­ploy­ees in­volved in pack­ag­ing and sell­ing mort­gage-backed se­cu­ri­ties at the heart of the 2008 fi­nan­cial cri­sis, a govern­ment re­port shows. The de­ci­sion, which fol­lowed Cit­i­group's $7-bil­lion set­tle­ment in 2014 re­solv­ing fed­eral and state civil claims re­lated to mort­gage bonds, was de­scribed in a Novem­ber re­port ob­tained by Reuters in re­sponse to a Free­dom of In­for­ma­tion Act re­quest.

Its re­lease marked the first pub­lic ac­knowl­edge­ment by U.S. au­thor­i­ties that ex­ec­u­tives at a ma­jor bank linked to the fi­nan­cial cri­sis would face no crim­i­nal charges for their in­volve­ment in sell­ing bil­lions of dol­lars of toxic mort­gage bonds.

The re­port, by the Fed­eral Hous­ing Fi­nance Agency's Of­fice of In­spec­tor Gen­eral, one of the agen­cies in the Cit­i­group probe, said fol­low­ing the set­tle­ment, pros­e­cu­tors re­viewed the ev­i­dence to see if any in­di­vid­u­als could be charged and de­ter­mined "there was not enough com­pelling ev­i­dence." The in­ves­ti­ga­tion fo­cused on the bank's prac­tices re­lated to its sale and is­suance of mort­gage bonds from 2006 to 2007.

The two-page re­port, which sum­ma­rized the in­ves­ti­ga­tion and called the probe closed, does not name any in­di­vid­u­als that were in­ves­ti­gated, nor does it elab­o­rate on why in­di­vid­u­als could not be suc- cess­fully pros­e­cuted.

Pa­trick Ro­den­bush, a U.S. Jus­tice Depart­ment spokesman, in a state­ment noted the depart­ment in Septem­ber an­nounced a new pol­icy that "em­pha­sizes the pri­or­ity in any cor­po­rate case of hold­ing in­di­vid­ual wrong­do­ers ac­count­able."

He de­clined to say, though, if in­di­vid­u­als at any other banks in­ves­ti­gated for prac­tices re­lated to mort­gage-backed se­cu­ri­ties re­mained un­der in­ves­ti­ga­tion. The sta­tus of any such probe is un­known.

A Cit­i­group spokes­woman, Danielle Romero-Ap­si­los, de­clined com­ment on Fri­day and a spokes­woman for the FHFA Of­fice of In­spec­tor Gen­eral did not re­spond to a re­quest for com­ment.

The re­view of the ev­i­dence in the Cit­i­group case for po­ten­tial cases against in­di­vid­u­als was con­ducted with the U.S. At­tor­ney's Of­fice in Colorado, one of two U.S. at­tor­ney's of­fices in­volved in the in­ves­ti­ga­tion.

Ac­cord­ing to the re­port, the re­view came at the re­quest of the Jus­tice Depart­ment, which asked that all mort­gage-backed se­cu­ri­ties set­tle­ments reached with the govern­ment be re­viewed to de­ter­mine if in­di­vid­u­als could be held per­son­ally re­spon­si­ble.

Those set­tle­ments have in­cluded a $13 bil­lion ac­cord with JPMor­gan Chase & Co (JPM.N) in 2013; a $16.65 bil­lion deal with Bank of Amer­ica Corp (BAC.N) in 2014. Most re­cently, fed­eral and state of­fi­cials an­nounced $3.2 bil­lion in set­tle­ments with Mor­gan Stan­ley ( MS.N) on Feb. 25, which when com­bined with a se­ries of re­lated res­o­lu­tions re­sulted in $5 bil­lion in set­tle­ments with govern­ment agen­cies. Gold­man Sachs Group Inc (GS.N) in Jan­uary an­nounced it had reached an agree­ment in prin­ci­ple to pay over $5 bil­lion to re­solve fed­eral and state claims. The Jus­tice Depart­ment has faced years of crit­i­cism for fail­ing to pros­e­cute bank­ing ex­ec­u­tives over con­duct lead­ing up to the fi­nan­cial cri­sis, even while it se­cured bil­lions of dol­lars in set­tle­ments with big banks.

The govern­ment cases came out of a task force formed by Pres­i­dent Barack Obama in 2012 to probe mis­con­duct that con­trib­uted to the fi­nan­cial cri­sis.

Obama said he was cre­at­ing the group to "hold ac­count­able those who broke the law" and "help turn the page on an era of reck­less­ness."

In Fe­bru­ary 2015, then-At­tor­ney Gen­eral Eric Holder said he had given fed­eral pros­e­cu­tors a 90-day dead­line to try to de­velop cases against in­di­vid­u­als re­lated to mort­gage bonds and re­port back if they could be suc­cess­ful.

De­spite that push, no such cases have emerged to date. In the case of Cit­i­group, the $7-bil­lion set­tle­ment ex­plic­itly did not re­lease in­di­vid­u­als at the bank from crim­i­nal or civil charges or the bank it­self from po­ten­tial crim­i­nal pros­e­cu­tion.

Dur­ing the probe, au­thor­i­ties gath­ered 25 mil­lion doc­u­ments re­lated to mort­gage se­cu­ri­ties, ob­tained in­ter­nal bank emails and doc­u­ments, and in­ter­viewed cur­rent and for­mer em­ploy­ees and ex­ec­u­tives, the in­spec­tor gen­eral re­port said.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.