The Royal Bank of Scotland is paying $20 million to settle an investigation by the Illinois attorney general related to the bank's marketing and sale of residential mortgage-backed securities.

The investigation had focused on the bank's alleged failure to disclose the securities true risks during the period leading up to the 2008 economic collapse.

"With this settlement, I have recovered over $475 million for Illinois pension systems and residents as a result of fraudulent conduct in the mortgage-backed securities market," Lisa Madigan, the Illinois attorney general, said in a press release. "Nearly a decade after the economic crisis, I continue to recover critical funds for the state due to Wall Street's misconduct."

Lisa Madigan
Lisa Madigan is the Illinois attorney general. Wikimedia Commons/S L O W K I N G


RBS recently agreed to pay almost $5 billion to resolve similar federal allegations. In the past year, RBS has agreed to pay more than $6 billion to resolve various charges related to the sale and marketing of its precrisis RMBS.

Illinois will divide the proceeds from its settlement with RBS between Illinois' Teachers Retirement System, the State Universities Retirement System, and the Board of Investment that oversees the State Employees' Retirement System.

Other financial services firms Madigan has settled precrisis RMBS allegations with include Bank of America, which agreed to pay $300 million. Bank of America distributed $200 million of that amount to Illinois pension systems and the remaining $100 million for consumer relief.

Madigan also settled RMBS charges with JPMorgan Chase for $100 million earmarked for distribution to state pension systems. Citigroup settled similar allegations for $44 million paid to state pension systems and agreed to pay an additional $40 million for consumer relief. Goldman Sachs agreed to pay $25 million to state pension systems and $16 million for consumer relief related to an RMBS investigation, and Morgan Stanley agreed to pay $22.5 million to state pension systems to resolve charges related to its marketing and sales of RMBS.

In addition, Madigan previously settled charges that two ratings agencies compromised their independent assessment of RMBS credit quality in exchange for revenue from securities sellers that paid them to rate deals. Standard & Poor's paid $52.5 million to settle these charges and Moody's paid $19.5 million.

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