Updated: 11:49 a.m.
In the largest-ever settlement between the U.S. government and a single company, Bank of America Corp. on Thursday agreed to pay $16.6 billion in penalties and consumer relief for selling toxic mortgage-backed securities.
The bank “knowingly, routinely, falsely, and fraudulently marked and sold these loans as sound and reliable investments,” said Attorney General Eric Holder at a news conference at the U.S. Department of Justice headquarters. “Worse still, on multiple occasions—when confronted with concerns about their reckless practices—bankers at these institutions continued to mislead investors about their own standards and to securitize loans with fundamental credit, compliance, and legal defects.”
The settlement resolves charges by DOJ, six states, the U.S. Securities and Exchange Commission, the Federal Deposit Insurance Corp., and the Department of Housing and Urban Development.
Bank of America will pay $9.65 billion in cash and provide $7 billion in consumer relief. According to the bank, the cash portion consists of a $5.02 billion civil monetary penalty and $4.63 billion in compensatory remediation payments. (Read the statement of facts here.)
“I want to be very clear: the size and scope of this multibillion-dollar agreement go far beyond the ‘cost of doing business,’” Holder said at a press conference at Main Justice. “This outcome does not preclude any criminal charges against the bank or its employees. Nor was it inevitable, over these last few weeks, that this case would be resolved out of court.”
Associate Attorney General Tony West reiterated points he has made in past announcements concerning financial institution abuses: No institution is too big or too powerful to escape enforcement, and the deal doesn’t preclude other criminal and civil investigations against bank employees that might be ongoing.
“Civil tools can be pretty effective. One of the reasons they’re so effective is because the lower burden of proof. A lot of times they’re more effective because we can move on them quickly,” West said. “It’s very intentional that we carve out criminal liability and the liability of individuals under these settlements.”
The civil penalty of $5 billion is the largest in history, West said.
In a statement, Bank of America Chief Executive Officer Brian Moynihan said: “We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future.”
Bank of America has not commented on outside counsel advising the company, but turned to Skadden, Arps, Slate, Meagher & Flom partner Charles Smith in the SEC case, according to the agency, as well as Amy Greer, a partner at Morgan, Lewis & Bockius. Skadden is counsel for Bank of America in a pending case the Department of Justice brought in the Western District of North Carolina.
As part of the settlement, Bank of America agreed to pay $245 million to settle two SEC cases, the agency said.
“Requiring an admission of wrongdoing as part of Bank of America’s agreement to resolve the SEC charges filed today provides an additional level of accountability for its violation of the federal securities laws,” said Rhea Kemble Dignam, regional director of the SEC’s Atlanta office.
Holder and West called on Congress to extend the tax relief coverage of the Mortgage Forgiveness Debt Relief Act of 2007. West said that “until it’s extended, consumers will be on the hook for paying the taxes on any consumer relief they receive.”
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