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Public pension plans reap benefits from Citigroup settlement


State pension funds in California and Illinois are among the recipients of Citigroup Inc.'s $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the financial crisis.

The accord includes a record $4 billion civil penalty to the Justice Department, $500 million to state attorneys general and the Federal Deposit Insurance Corp., and about $2.5 billion in various forms of consumer relief to be provided by the end of 2018, the bank said in a statement July 14.

California Attorney General Kamala D. Harris announced in a statement that the state will receive $102.7 million in damages, which will reimburse the $300.9 billion California Public Employees' Retirement System, Sacramento, and the $189.1 billion California State Teachers' Retirement System, West Sacramento. The state also will receive $90 million in consumer relief.

Illinois Attorney General Lisa Madigan said in a statement that Illinois is receiving $44 million to reimburse the $44.2 billion Illinois Teachers Retirement System, Springfield; the $16.9 billion Illinois State Universities Retirement System, Champaign; and the $14.8 billion Illinois State Board of Investment, Chicago, which oversees the State Employees' Retirement System, General Assembly Retirement System and Judges' Retirement System. The state is also receiving $40 million in consumer relief.

New York is receiving $92 million in cash and $90 million in consumer relief, said state Attorney General Eric Schneiderman in a statement, but he did not specify how much would specifically go to the state's pension funds.

Citibank took a $3.7 billion charge in the quarter ended June 30 to cover the cost of the settlement, the firm said in its statement.

Citigroup was among lenders investigated by the Justice Department for allegedly misrepresenting the quality of mortgage-backed bonds sold to investors before 2008's credit crisis. J.P. Morgan Chase & Co., the biggest U.S. bank, agreed in November to pay $13 billion to resolve similar federal and state probes. The government has sought about $17 billion from Bank of America, a person familiar with those talks has said.

“The bank's misconduct was egregious,” U.S. Attorney General Eric Holder said in a text of his prepared remarks. “And under the terms of this settlement, the bank has admitted to its misdeeds in great detail.”

The settlement, which caps months of negotiations, covers securities issued, structured and underwritten between 2003 and 2008, according to Citigroup.

Bloomberg contributed to this story.

Rob Kozlowski writes for Pensions & Investments, a sister publication of Business Insurance.