In a deal reached with the US Justice Department, Société Générale will pay $50M to settle civil charges accusing the bank of hiding that the residential mortgaged-backed securities (RMBS) that it promoted and sold were of poor quality. According to the government, the French bank made false representations involving the SG Mortgage Securities Trust 2006-OPT2, a $780M debt issue that it organized more than a decade ago. As part of the settlement, Société Générale admitted that it hid how many of the loans underlying the RMBS shouldn’t have been securitized or were not properly underwritten.
In a statement of facts, Société Générale took responsibility for its conduct. The bank admitted that it falsely represented that loans underlying the residential mortgage-backed security had been originated according to the underwriting guidelines of the loan originator. It also represented to investors that when the SG 2006-OPT2 was originated, no loans in the RMBS had a combined loan-to-value ratio or loan-to-value greater than 100%–this is a claim that Societe General is now admitting was false.
As a result of the bank’s actions, said the DOJ, investors lost “significant” amounts of money and they may lose more. Investors that were impacted include a number of financial institutions that are federally insured.