(CN) – The U.S. Department of Justice reached a record settlement of $4.9 billion with the Royal Bank of Scotland for “financial-crisis era mismanagement.”
In an August 14 announcement, the DOJ said RBS had systemically misled investors between 2005 and 2008 about residential mortgage-backed securities.
“This resolution – the largest of its kind – holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community,” said Andrew E. Lelling, U.S. Attorney for the District of Massachusetts. “Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default.”
The settlement breaks down a host of alleged misconduct by RBS including how it failed to follow its own internal procedures when approving loans based on inflated property appraisals for borrowers who had no ability to repay their debts. In addition, the bank was found to have ignored due diligence findings, waiving findings of defective loans in a third of all cases.
“RBS’s due diligence frequently found that loan data – which RBS passed on to investors, who used the data to analyze the risks associated with its RMBS – were riddled with errors. Many inaccuracies made the loans look less risky than they actually were. RBS, however, did not require originators to correct the data errors,” the DOJ release states.
The company earned millions in fees while thrusting billions in risk upon “unsuspecting investors across the world.”
However, the company disputes the DOJ’s findings and did not admit to any misconduct.
“These are allegations only, which RBS disputes and does not admit, and there has been no trial or adjudication or judicial finding of any issue of fact or law,” the DOJ stated.