By Andrew Grossman
WASHINGTON-- Citigroup Inc. committed "egregious" misconduct by
covering up problems with loans it was packaging into securities
and selling to investors, Attorney General Eric Holder is expected
to say Monday when the Justice Department announces a $7 billion
settlement with the bank to resolve the government's mortgage
probe.
"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,"
Mr. Holder plans to say, according to a prepared copy of his
remarks.
Citigroup will pay an expected $4 billion fine to settle the
probe--twice as much as the penalty paid by J.P. Morgan to resolve
a similar case, even though its role in the mortgage securities
business was smaller. Justice Department officials have said that
reflects the high level of malfeasance committed by Citigroup. The
rest of the settlement will go to consumer relief, the Federal
Deposit Insurance Corp. and the states of California, Delaware,
Illinois, Massachusetts and New York, according to people familiar
with the matter.
Mr. Holder plans to say that the bank's misdeeds--which it
admitted to "in great detail" as part of the settlement--allowed it
to dupe investors and win market share. That, he said, hurt
endowment and pension funds, municipalities and charities.
In his prepared remarks, Mr. Holder noted the civil settlement
doesn't rule out future criminal charges against Citigroup or its
employees. He hinted at the back-and-forth talks that led up the
deal, which nearly ended with the Justice Department suing the
bank.
"We believe the size and scope of this resolution goes beyond
what could be considered the mere cost of doing business," Mr.
Holder planned to say. "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."
Write to Andrew Grossman at andrew.grossman@wsj.com
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