ON CITIBANK'S TOXIC LOANS

Attorney General Holder Speaks at Press Conference Announcing Major Financial Fraud

Good morning – and thank you all for being here. Today, I am joined by Associate Attorney General [Tony] West; United States Attorney for the Eastern District of New York [Loretta] Lynch; United States Attorney for the District of Colorado [John] Walsh; and Acting Inspector General for the Federal Housing Finance Agency [Michael] Stephens – as we announce a significant step in our ongoing effort to hold accountable those whose actions have threatened the integrity of our financial markets and undermined the stability of our economy.

Today, the Justice Department attained a landmark civil resolution with Citigroup totaling $7 billion in fines and consumer relief to address the bank's involvement in a scheme to sell fraudulent securities that were backed by toxic loans. This total includes a civil penalty of $4 billion, the largest penalty to date of its kind.

The penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi. Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitizing, the bank and its employees concealed these defects. They misrepresented the facts, including the level of risk. They sold defective loans to countless investors, including federally-insured financial institutions. And they made false statements to investors, in marketing materials, and even in documents filed with the Securities and Exchange Commission. They led investors and the public to believe that these financial products had been originated in compliance with the law and key underwriting guidelines when this was often not the case.

The bank's misconduct was egregious. And under the terms of this settlement, the bank has admitted to its misdeeds in great detail. The bank's activities shattered lives and livelihoods throughout the country and around the world. They contributed mightily to the financial crisis that devastated our economy in 2008. While Citigroup was not alone in its willingness to ignore internal warnings and disregard the law in order to defraud consumers and investors, as a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits. They did so at the expense of millions of ordinary Americans and investors of all types – including other financial institutions, universities and pension funds, cities and towns, and even hospitals and religious charities. Ultimately, these investors suffered billions of dollars in losses when Citi's false and fraudulent claims came crashing down.

Today, we hold the bank accountable for this wrongdoing – which had devastating ripple effects that cascaded through economies and financial institutions across the globe. I want to thank U.S. Attorneys Lynch and Walsh, along with their dedicated staff members, for their leadership in making this resolution possible. Alongside attorneys, analysts, and other committed public servants assigned to the RMBS Working Group – part of the President's Financial Fraud Enforcement Task Force, which I am proud to chair – they questioned a succession of witnesses, sifted through terabytes of data, and reviewed millions of documents.

In addition to the historic $4 billion penalty assessed against Citi, this resolution also includes $2.5 billion in relief that will be provided to those homeowners and communities affected by the bank's fraudulent activities. This assistance has become a must-have element in our agreements with banks that contributed to the mortgage crisis. It will remain so.

Importantly, this agreement does not in any way absolve Citigroup or its individual employees from facing any possible criminal charges in the future.

Taken together, we believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business. In fact, it was not at all inevitable in these last few weeks that this case would be resolved out of court. But in all of its cases, the Justice Department is committed to delivering outcomes that are commensurate with the misconduct at issue.

This action is merely the latest step in our active and ongoing pursuit of those whose activities defrauded the American people and inflicted grave damage on our financial markets. Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last. In the investigations that remain open, we will continue to move forward – guided by the facts and the law – to achieve justice for those affected by the financial crisis. These investigations are not only about holding those who violate the public trust to account; they are also intended to deter banks from engaging in this type of conduct in the future.

Now I'd like to turn things over to Associate Attorney General Tony West, who will provide additional details on today's announcement.

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Thank you, Mr. Attorney General, and thank you all for being here today.

With today's $7 billion resolution against Citibank -- one of the largest banks in the United States -- we reaffirm the straightforward principle that no institution is too big or too powerful to escape appropriate enforcement action.

In addition to the record-breaking $4 billion federal civil penalty, the billions of dollars in meaningful consumer relief, and a Statement of Facts in which Citi admits its conduct, today's resolution brings a half-billion dollars in cash restitution payments to the FDIC and five states -- compensation for investment losses suffered when the value of Citi mortgage-bond securities they purchased collapsed.

As [U.S. Attorneys] John [Walsh] and Loretta [Lynch] will outline in more detail shortly, Citi acknowledges that, over the course of numerous transactions, the bank put together billions of dollars of mortgage-bond deals with loans it knew were defective, and then misrepresented the quality of those mortgage-bond deals to investors who purchased them.

And in a pattern we've seen repeated throughout the financial industry, once enough people realized that the quality of these investments was not as advertised, they quickly lost value, leading to huge monetary losses that helped to precipitate a financial calamity that leaves many Americans still struggling.

So today, we hold Citi accountable for its contributing role in creating the worst financial crisis since the Great Depression, not only by demanding the largest civil penalty in history, but also by requiring $2.5 billion in consumer relief that will help rectify the harm caused by Citi's conduct.

Collaborating with our colleagues at the Department of Housing and Urban Development, we have worked with Citi to construct an innovative consumer relief menu -- one that not only includes the principal reductions and loan modifications we've built into previous resolutions, but also new, consumer-friendly measures such as:

• Favorable refinancing to lower interest rates for those borrowers who have responsibly kept current on their mortgage payments but for whom it's been a struggle since their interest rates are so high.

• Significant investments in community development and neighborhood stabilization efforts, including investments in housing counseling and related legal aid, which will help families hardest hit by the financial crisis avoid foreclosure and homelessness.

• And hundreds of millions of dollars in subordinate financing for the construction of affordable rental housing in high cost-of-living areas -- the type of financing that has traditionally been provided by municipalities but has become increasingly difficult to obtain as public budgets have been cut. We hope this measure will bring relief to families who were pushed into the rental market after losing their homes in the wake of the financial crisis.

Now, we know these measures won't cure every ill or solve every problem created by the financial crisis; but they are significant steps toward rectifying the harm caused by what the President called "an era of recklessness" in our financial markets.

In the meantime, we're not letting up and we're not going away; we will continue to pursue these cases and follow the facts wherever they lead and enforce the law fairly but aggressively should we uncover evidence of unlawful conduct. And as the Attorney General indicated a moment ago, the American people should expect to hear more from the RMBS Working Group in the very near future.

One final note: today's resolution really underscores the powerful collaboration between this Justice Department, its federal government partners and state Attorneys General around the country who are investigating and prosecuting misconduct in the RMBS market. This is a federal-state partnership that has, to date, resulted in total recoveries of $20 billion dollars to American consumers and investors.

So my thanks to our partners for their participation in today's resolution: the FDIC and state Attorneys General Beau Biden [of Delaware], Martha Coakley [of Massachusetts], Kamala Harris [of California], Lisa Madigan [of Illinois], and Eric Schneiderman[ of New York], who is also a RMBS Working Group co-chair.

I also want to thank all of our Working Group members and co-chairs, and in particular the Working Group's Director, Geoff Graber, for their hard work and dedication to this effort.