Citigroup settles CDO class action

Posted on: September 9th, 2013 by Steve Larson
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Stocks and sharesA New York federal judge on Tuesday approved a settlement that will have Citigroup, Inc. pay $730 million to an investor class that alleged the bank misled purchasers about its exposure to collateralized debt obligations (“CDO’s”) backed by subprime assets.  The settlement is one of the 15 largest recoveries in a securities class action. It is the second-largest recovery in a securities class action brought on behalf of purchasers of debt securities and one of the three largest recoveries ever in a case that does not involve a financial restatement.

After sending notice of the settlement to 500,000 potential class members, the court received exactly zero objections regarding the fairness of the $730 million figure or the plan of allocation, U.S. District Judge Sidney Stein wrote on Tuesday.

Judge Stein called the plan “fair, reasonable and adequate.”

The settlement ends four years of protracted litigation arising from allegations that Citigroup conducted a series of public offerings based on offering documents that contained material misrepresentations and omissions regarding its exposure to billions of dollars in mortgage-related assets.

The lawsuit was filed January 15, 2009, by a group of bond plaintiffs on behalf of purchasers of 48 offerings of Citigroup preferred stock and bonds issued from 2006 through 2008. The plaintiffs said Citigroup had made false statements about its exposure to $66 billion in CDOs backed by subprime assets and about the value of its CDOs, among other things.

The plaintiffs also alleged Citigroup had materially understated the loss reserves for high-risk residential mortgage loans and falsely stated that risky assets held in structured investment vehicles were of high-credit quality.

Beginning in early 2012, the parties began discussing a potential resolution of the suit and agreed to have the case mediated before former U.S. District Judge Layn R. Phillips.

The parties made multiple submissions to Judge Phillips concerning liability and damages before he recommended that the case be settled for $730 million payable by Citigroup, to which both parties agreed.

The case is In re: Citigroup Inc. Bond Litigation, case number 1:08-cv-09522, in the U.S. District Court for the Southern District of New York.