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July 14, 2014

How Citigroup’s $7 Billion Settlement Was Divvied Up Between the Feds and State AGs

Citigroup Inc. announced today that it will pay $7 billion as part of a settlement with the U.S. Department of Justice over the company’s sale of mortgage-backed securities.

The New York Times‘ Michael Corkery reports that the settlement includes a $4 billion cash payment to the Justice Department – “the largest payment of its kind” – as well as “$2.5 billion in so-called soft dollars earmarked for aiding struggling consumers and $500 million to state attorneys general and the Federal Deposit Insurance Corporation.”

A separate Times report details the behind-the-scenes negotiations over this settlement — specifically how some government entities, such as the Justice Department and state attorneys general — were fighting to divide up the settlement pie.

According to that report, Citigroup’s initial settlement offers of $363 million and $700 million — “based largely on an analysis of its market share” — were both rebuffed by the Justice Department.

The same fate befell the company’s next offer of $1 billion, and the company was told to “ratchet up the offer or face a long and bruising court battle.” Discussions then ensued over a larger settlement, including discussions of money for state attorneys general and the FDIC.

Tony West, the government’s lead negotiator and the Justice Department’s No. 3 official, “whose sister-in-law happens to be the attorney general of California — suggested an extra $900 million payment for the states and FDIC.”

Citigroup raised its offer to include $3.6 billion for the Justice Department, $2.5 billion in “consumer relief” and $900 million to the states and the FDIC. After further negotiations, and a delay due to the federal government’s arrest of a suspect in the Benghazi attacks, the Justice Department agreed to the final settlement, which not only shifted $400 million from the state attorneys general and the FDIC to the Justice Department, but also included Citigroup’s request “to forgo any potential cases against Citigroup over collateralized debt obligations” (financial instruments sold by the bank in the years before the financial crisis). 

As part of the settlement, Citigroup is also required to hire attorney Thomas J. Perrelli as an “independent monitor.” Perrelli, now at Jenner and Block, formerly worked for Attorney General Eric Holder at the Justice Department. Details of Citigroup’s contract with Perrelli were not reported.

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