General Electric will pay $1.5 billion to settle claims from the Justice Department that the industrial giant misrepresented the quality of subprime loans, the agency said on Friday, resulting in some investors losing billions of dollars.
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The charges stem from GE’s purchase of WMC Mortgage in 2004. The subprime residential mortgage loan provider originated more than $65 billion in loans over the next three years. The majority, however, did not ultimately adhere to published underwriting guidelines, the DOJ said.
Despite that, the company allegedly continued to misrepresent the quality of the loans and engaged in an aggressive campaign to approve more lending to meet volume targets and drive higher profits. At the same time, WMC’s quality control protocols lacked the clout to prevent the sale of fraudulent loans.
“The failure to disclose material deficiencies in those loans contributed to the financial crisis,” said Assistant Attorney General Jody Hunt, adding that the Justice Department would continue to seek civil penalties to prevent the financial markets against fraud.
While the top three Wall Street stock indexes were on an upswing on Friday, shares of GE’s were on the decline.
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The Boston-based firm is attempting to turnaround its flailing business under CEO Larry Culp. The company has sold off key divisions, including a sale of its biopharma business to Danaher for $21.4 billion. GE is also planning an expensive revamp of its struggling power sectors, which makes turbines for power plants.
Culp in March said profits would drop more-than-expected in 2019, but turn positive over the next two years.