California Attorney General Xavier Becerra announced a $125 million settlement with the Royal Bank of Scotland (RBS) over misrepresentations about residential mortgage-backed securities sold to California’s public employee and teacher pension funds CalPERS and CalSTRS.
The latest settlement by RBS comes as it continues to seek to resolve a much larger US Justice Department investigation into sales of mortgage-backed securities by the Scottish bank before the financial crisis.
“Mortgage-backed securities are complex investments which include thousands of mortgage loans of potentially varying quality, where the buyer typically relies on assurances that the loans have been carefully screened and are not too risky,” said the Attorney General’s office in a statement.
“An investigation conducted by the Attorney General’s Office found that the descriptions of these mortgage-backed securities to investors failed to accurately disclose the true characteristics of many of the underlying mortgages, and that due diligence to remove poor quality loans from the investments was not adequately performed.
“RBS was aware of the misrepresentations but failed to correct them.
“This resulted in millions in losses to CalPERS and CalSTRS.”
Becerra said: “RBS decided to mislead California’s pension funds in order to line its own pockets – plain and simple.
“Today’s settlement returns to our pension funds, which hardworking Californians rely on upon retirement, money that RBS wrongfully took from them.”
RBS CEO Ross McEwan said: “We have been very clear that putting our remaining legacy issues behind us is a key part of our strategy.”