Citigroup Inc. agreed to pay $7 billion, including a $4 billion civil penalty, to resolve federal and state claims involving Citigroup’s misrepresentation, securitization, and sale of residential mortgage-backed securities (RMBS) prior to Jan. 1, 2009. The $4 billion civil penalty is the largest penalty of its kind under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

According to the settlement agreement, Citigroup admitted that it knowingly made misrepresentations about the quality of mortgage loans to investors. On several occasions, Citigroup employees learned that a significant percentage of mortgage loans had material defects, but Citigroup nonetheless securitized the loan pools containing toxic loans and sold the RMBS for billions of dollars. Attorney General Eric Holder said that Citigroup’s actions “contributed mightily to the financial crisis that devastated [the] economy in 2008.”

In addition to the $4 billion civil penalty, the $7 billion settlement also consists of $208.25 million to settle securities claims by the Federal Deposit Insurance Corporation (FDIC), as well as payments to states including California, New York, and Illinois. The resolution also requires Citigroup to pay $2.5 billion to provide consumer relief, such as facilitating the construction of affordable rental housing, to those harmed by Citigroup’s actions.

Read the entire DOJ press release, “Justice Department, Federal and State Partners Secure Record $7 Billion Global Settlement with Citigroup for Misleading Investors About Securities Containing Toxic Mortgages”