Putting an end to a legal tussle, The Goldman Sachs Group, Inc. GS is likely to pay around $270 million to settle claims of misguiding investors about the risks related to multi billion dollars worth of residential mortgage-backed securities (MBS). The news was first reported by Bloomberg on Friday, citing two people familiar with the matter.
The class action that has been brought by pension funds led by NECA-IBEW Health & Welfare Fund of Illinois alleged that the bank provided false statements or omitted material facts in the registration statement representing the mortgage offerings.
Goldman is accused of having provided misleading information regarding the underwriting standards, appraisal of properties and credit quality of the underlying mortgage loans. Amid the 2008 financial crisis, the prices of the securities crashed.
Separately, on Friday, Goldman, Citigroup Inc. C and UBS Group AG UBS received court approval for a $235 million settlement reached in February to resolve claims in a lawsuit over residential mortgage-backed securities issued by former Residential Capital LLC during the pre-crisis period.
Notably, last month JPMorgan Chase & Co. JPM reached a $388 million settlement on a similar matter.
Post financial crisis, regulatory bodies have ramped up efforts to regulate institutions and penalize them for wrongdoings and misrepresentation of facts while selling their investment products. We believe that while such settlements dent the company’s financials to some extent, they reduce the litigation overhang. Notably, last month, Goldman revealed that it has put aside $1.45 billion in the second quarter for mortgage-related litigation expenses and regulatory matters.
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