WASHINGTON, D.C. — A recent $4.9 million settlement reached between the U.S. Department of Justice (DOJ) and the Royal Bank of Scotland (RBS) is the largest penalty imposed on a single entity by the department for financial crisis-era misconduct, according to the federal government.
The settlement stems from the DOJ's allegations that RBS misled investors when underwriting and issuing residential mortgage-backed securities (RMBS) from 2005 and 2008.
"This resolution – the largest of its kind – holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community,” U.S. attorney for the District of Massachusetts Andrew Lelling said in a statement. “Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default."
“The actions of RBS resulted in significant losses to investors, including Fannie Mae and Freddie Mac, which purchased the residential mortgage-backed securities backed by defective loans,” added Federal Housing Finance Agency-Office of Inspector General’s associate inspector General Jennifer Byrne.
According to the DOJ, RBS earned hundreds of millions of dollars when it ensured repayment from faulty loans while pushing the risk of the loans onto unsuspecting investors including non-profits, retirement funds and federally insured financial institutions across the globe.