Skadden Arps Slate Meagher & Flom has brokered a record-breaking $16.6bn (£10bn) settlement with the US Department of Justice (DoJ) for client Bank of America to resolve allegations of fraudulent mortgage handling.
The deal is the largest civil settlement from one single entity in American history and a win for assistant US attorney Leticia Vandehaar of the District of New Jersey, who led the investigation.
The Skadden team behind the historic deal is understood to be government enforcement partner John Caroll and corporate and commercial litigation partner Charles Smith.
The deal sees the bank paying out $9.65bn in cash and provide approximately $7bn worth of consumer relief. The cash portion consists of a $5.02bn civil monetary penalty and $4.63bn in compensatory remediation payments.
“We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future,” said the bank’s CEO Brian Moynihan in a statement.
The settlement comes after an investigation into the origination of defective residential mortgage loans by Countrywide’s consumer markets division and Bank of America’s retail lending division as well as the fraudulent sale of such loans to the government-sponsored enterprises Fannie Mae and Freddie Mac.
The investigation into these practices and three private whistleblower lawsuits were also resolved with this settlement.
As part of this global resolution, the bank agreed to pay a $5bn penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) – the largest penalty to date since the act’s implementation in 1989 – and provide billions of dollars of relief to struggling homeowners, including funds that will help defray tax liability.
The DoJ said that a settlement does not release individuals from civil charges, nor does it absolve Bank of America from possible prosecution in future.
The largest previous settlement involved JP Morgan Chase, which in November 2013 agreed to pay $13bn and admit it sold billions in toxic mortgage investments. In July, Citigroup agreed to a $7bn settlement over similar DoJ allegations.