Citigroup shelling out millions more over toxic mortgages

by Ryan Smith21 Aug 2013

A federal judge on Tuesday approved a deal in which Citigroup will pay bondholders $730 million to settle claims that the bank hid its exposure to billions of dollars in troubled mortgage assets, according to a Reuters report. The bank denied any wrongdoing when agreeing to the settlement.

The settlement comes less than three weeks after Citigroup agreed to pay $590 million to shareholders in a similar case.

The lawsuit dealt with Citigroup’s sale of bonds and preferred stock between May of 2006 and August of 2008, according to Reuters. Bondholders accused Citigroup of minimizing its exposure to about $166bn in investments backed by subprime mortgages and other troubled assets.

U.S. District Court Judge Sidney Stein, who approved the settlement, said that although bondholders might have deserved more, the settlement amount was reasonable.

“Certainly, the settlement does not represent the best possible recovery for plaintiffs; their damages experts estimate that to be approximately $3 billion," he wrote. “Nevertheless, a recovery of $730 million represents a substantial sum, and the risk that the class would recover nothing or would recover a fraction of the maximum possible recovery must factor into the decision-making.”

Steven Singer, a partner at Bernstein Litowitz Berger & Grossmann, the firm representing the plaintiffs, told Reuters he was pleased that the settlement had been approved. Citigroup spokesman Mark Costiglio said the bank was “pleased to put this matter behind us.”

Attorneys representing the plaintiffs said the settlement was the second largest in securities class action ever recovered on behalf of bond investors, Reuters reported.