DOJ Reaches $4.9 Billion Settlement – Largest of Its Kind - with Royal Bank of Scotland

The U.S. Department of Justice has announced this week a massive $4.9 billion settlement with the Royal Bank of Scotland, “resolving federal civil claims that RBS misled investors in the underwriting and issuing of residential mortgage-backed securities (RMBS) between 2005 and 2008.”

The announcement comes just two weeks after DOJ’s announcement of a similar settlement with Wells Fargo for $2.09 billion and continues the agency’s efforts to make sense of, and dole out penalties pursuant to, the 2008 housing market collapse.

“Many Americans suffered lasting economic harm as a result of the 2008 financial crisis,” said Acting Associate Attorney General Jesse Panuccio.  “This settlement holds RBS accountable for serious misconduct that contributed to that financial crisis, and it sends an important message that the Department of Justice will pursue financial institutions that illicitly harm the American economy and our consumers.”

Andrew Lelling, U.S. Attorney for the District of Massachusetts, noted that this resolution is “the largest of its kind” and “holds RBS accountable for defrauding people and institutions that form the backbone of our investing community.”

“Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default,” said Lelling. “Our settlement today makes clear that institutions like RBS cannot evade responsibility for the damage caused by their illicit conduct, and it serves as a reminder that the Justice Department, and this Office, will hold those who engage in fraudulent conduct accountable.”

The settlement notes at least four areas in which RBS “routinely made misrepresentations to investors about significant risks it failed to disclose about its RMBS,” including systematic problems with the originators’ loan underwriting, modified due diligence findings without justification, the provision of inaccurate loan data to investors, and a failure to disclose due diligence and kick-out caps.

Under the settlement, these actions are still considered allegations, with RBS officially still disputing the account, but still committed to cooperating with the settlement, the same arrangement made with Wells Fargo earlier this month.