U.S. Markets close in 5 hrs

General Electric agrees to pay $1.5 billion penalty for allegations related to subprime lending unit

  • GE agreed to pay the Department of Justice a $1.5 billion settlement for alleged subprime mortgage accounting violations.
  • The settlement amount was largely expected.
  • The potential violations were investigated under the the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

General Electric GE  agreed to pay the Department of Justice a $1.5 billion penalty for alleged accounting misrepresentations stemming from the company's now defunct subprime mortgage business WMC.

GE shares slid lower by 0.6% in midday trading, as the settlement amount was largely expected. The company announced the settlement in principle during the company's fourth quarter earnings report in January and had set aside $1.5 billion in reserves last year. 

The Justice Department alleged that GE, through WMC, misrepresented the quality of its subprime loans.

"The financial system counts on originators, which are in the best position to know the true condition of their mortgage loans, to make accurate and complete representations about their products. The failure to disclose material deficiencies in those loans contributed to the financial crisis," Justice Department Assistant Attorney General Jody Hunt said in a statement.

The potential violations were investigated under the the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). The law allows federal authorities to pursue civil penalties of violations made by federally insured financial institutions.

The final agreement was reached on Friday.

"This settlement contains no admission of any allegations and concludes the FIRREA investigation of WMC," a GE spokesperson said in a statement to CNBC. "This is another step in our ongoing efforts to de-risk GE Capital. This agreement represents a significant part of the total legacy exposure associated with WMC and we are pleased to put this matter behind us."



More From CNBC