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In a statement on Friday, the U.S. Department of Justice
said the French bank concealed problems in a $780 million debt
issue it arranged in 2006, and which has since left investors
with “significant losses” that may grow further.
The debt issue, SG Mortgage Securities Trust 2006-OPT2, was
backed by subprime loans from Option One Mortgage Corp, then a
unit of tax preparer H&R Block Inc.
Societe Generale admitted to concealing how many of the
loans were not underwritten properly and should not have been
securitized, and that no borrowers owed more on their loans than
their homes were worth.
The settlement papers quote from a senior Societe Generale
banker who used a profanity in characterizing industrywide
subprime lending practices at the time, and declared that “the
whole process is a joke.”
U.S. investigators were not amused.
“It was not a ‘joke,'” Robert Capers, the U.S. Attorney for
the Eastern District of New York, said in a statement.
“SocGen’s acknowledgment of its misconduct in the
securitization of SG 2006-OPT2 was a critical component of this
resolution,” he added. “We will not tolerate investment banks
making false representations to investors.”
Jim Galvin, a Societe Generale spokesman, said: “Societe
Generale is pleased to have resolved this legacy matter
involving a business that the firm exited in 2008.”
U.S. regulators have won tens of billions of dollars of
fines, restitution and other relief from banks worldwide that
were accused of helping fuel the 2008 global financial crisis by
selling shoddy mortgage-backed securities.
Two other European banks, Deutsche Bank AG and
Credit Suisse Group AG, completed respective $7.2
billion and $5.3 billion settlements this week. (Additional reporting by Karen Freifeld)
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