Securities Regulation Daily Goldman to settle RMBS investigation for $5 billion
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Thursday, January 14, 2016

Goldman to settle RMBS investigation for $5 billion

By John M. Jascob, J.D., LL.M.

The Goldman Sachs Group, Inc. has agreed to pay over $5 billion in penalties, compensation, and consumer relief in order to settle an ongoing investigation into the firm's securitization and sales of residential mortgage-backed securities (RMBS). According to the company's news release, the settlement will resolve actual and potential claims against Goldman Sachs by the U.S. Department of Justice, the National Credit Union Administration, and the attorneys general of New York and Illinois arising out of the firm’s RMBS-related activities.

Under the terms of the agreement in principle, Goldman Sachs will pay a $2.385 billion civil monetary penalty, make $875 million in cash payments, and provide $1.8 billion in consumer relief to resolve the investigation of the RMBS Working Group of the U.S. Financial Fraud Enforcement Task Force (FFETF). The consumer relief will take the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for affordable housing; and support for debt restructuring and foreclosure prevention, among other things.

President Obama formed the Financial Fraud Enforcement Task Force in November 2009. Among its efforts, the FFETF created the RMBS Working Group, comprised of several state agencies and state attorneys general, to investigate fraud in the packaging, marketing, sale, and issuance of RMBS. In seeking to target conduct that was a major contributing factor to the financial crisis, the RMBS Working Group helped secure a $13 billion settlement with JPMorgan Chase & Co. in November 2013 and a $7 billion resolution with Citigroup in July 2014 for alleged misconduct pertaining to RMBS.

The agreement in principle will reduce Goldman Sachs’ earnings for the fourth quarter of 2015 by approximately $1.5 billion on an after-tax basis, according to the news release.

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