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By   /   July 14, 2014  /   No Comments

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U.S. Associate Attorney General, Tony West (l); and Attorney General, Eric Holder. (photo: stamfordadvocate.com)

U.S. Associate Attorney General, Tony West (l); and Attorney General, Eric Holder. (photo: stamfordadvocate.com)

It was a deal that almost never happened.

A $7 billion deal between Citigroup Inc. and the Justice Department regarding the bank’s penalty for its role in the sub-prime mortgage crisis was nearly derailed, but a terrorist’s arrest indirectly got it back on track.

Ahmed Abu Khatallah, a Libyan believed to be part of the attack on the American Embassy in 2012, was captured on June 17th.  Soon afterward, news leaked about Khatallah’s arrest.

At that point, the Justice Department and Citigroup had been in negotiations for months about the financial penalty the bank would pay for its role in issuing defecting home loans for years, leading up the financial crisis in 2008.

The Wall Street Journal reported that Justice Department officials were “frustrated my months of haggling,” and were on the verge of suing Citigroup.  The two sides were billions of dollars apart, with Citigroup proposing a settlement around $300 million, and the Government wanting to levy a penalty of $12 billion.

The Journal reports that Attorney General Eric Holder had decided that the impasse was insoluble, and was going to sue Citigroup.

Khatallah’s arrest changed that.

Holder and his colleagues at Justice determined that the news of the suspected terrorist’s arrest would overshadow the lawsuit against Citigroup, and so they put the lawsuit on hold and continued to negotiate with the bank’s attorneys.

The deal with Citigroup is the second settlement with an U.S. bank, penalized for issuing sub-prime mortgage-backed securities. In November, 2013, the Justice Department settled with JP Morgan regarding its role in the massive financial crisis.  The whistleblower in that case received $63 million for his role in the $13 billion settlement.

“The bank’s conduct was egregious,” Attorney General Eric Holder said at a news conference. “The bank’s activities shattered lives and livelihoods throughout the country and around the world.”

As for Khatallah, he was indicted by a federal grand jury on the charge of “conspiracy to provide material support and resources to terrorists, knowing and intending that these would be used in preparation for and in carrying out a killing in the course of an attack on a federal facility, and the offense resulted in death,” according to the U.S. Justice Department.

To read the Wall Street Journal article, click here.  (the article is reprinted on this site, due to the paywall at the Wall Street Journal site.)







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