Illinois To Receive $84 Million From Citigroup Settlement
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(CBS) – The state of Illinois will get $84 million from Citigroup, after the bank agreed to pay $7 billion to settle the federal government’s allegations it misled investors about the risks of subprime mortgages.
WBBM Newsradio Political Editor Craig Dellimore reports the U.S. Justice Department and attorneys general from several states, including Illinois, accused Citigroup of knowingly selling defective mortgage investments, leading to the housing crisis that set of the recession of 2008.
Illinois Attorney General Lisa Madigan said $44 million of the settlement money will go to the state’s underfunded pension systems, to cover losses they suffered when they invested in securities backed by subprime mortgages, which were a lot riskier than Citigroup said they were.
“These securities, backed by pools of some of the riskiest home loans, were a chief contributor to the economic collapse of 2008,” Madigan said. “Citigroup’s failure to fully disclose the nature of these financial products caused investors – including Illinois’ pension systems – to make riskier investments than they originally understood.”
Madigan said bond rating agencies exacerbated the problems.
“Most pension funds are only allowed to invest in highly-rated securities. Unfortunaely, these residential mortgage-backed securities were oftentimes rated by Standard & Poor’s and the other rating agencies as AAA, when in fact the mortgages that were really the meat of those securities were junk.”
The attorney general’s office has sued Standard & Poor’s over its rating of subprime mortgage-backed securities.
In addition to the $44 million going to the state’s pension funds, another $40 million will go to consumers “to assist Illinois communities, including financial assistance for homeowners and renters, and for blight-reduction initiatives in areas that are still struggling to recover from the housing crisis.”
The overall $7 billion settlement includes a record $4 billion civil penalty, $500 million to state attorneys general and the FDIC, and $2.5 billion in consumer relief.
Last year, JPMorgan Chase settled a similar case, paying out $13 billion in settlement money – including a $2 billion civil penalty.