On Wednesday, U.S. District Judge Sidney Stein in Manhattan granted preliminary approval of a settlement between Citigroup and its shareholders over CDOs. According to terms of the agreement, Citigroup has a great to pay $ 590 million for settling a lawsuit brought by shareholders, which accuses Citigroup of hiding tens of billions of dollars of useless and harmful mortgage assets during the economic recession.
The agreement, which has been scheduled for final approval at a hearing on 15 January 2013, seeks to resolve claims of shareholders who ended up with huge losses as the bank failed to take timely action on collateral debt obligations, many of which were backed by sub-prime mortgages. Shareholders have also claimed that the bank engaged in self-dealing transactions to hide the risks.
Citigroup said the proposed settlement was “a significant step toward resolving our exposure to claims arising from the period of the financial crisis.” Citigroup also denied any wrongdoing while agreeing to settle.
Similar disputes stemming from the financial crisis during 2007-2008 have caused investors to sue many banks over their conduct during the mortgage mess. In 2010, Bank of America agreed to a $ 601.5 million settlement over its mortgage unit Countrywide. Similarly, last year, Wells Fargo made a $ 590 million settlement over loans and securities of the former Wachovia Corp.
The proposed settlement which has received preliminary approval covers shareholders from 26 February 2007 to 18 April 2008.
In a separate move, Citigroup is also trying to get a settlement with the SEC approved in major. In that case the SEC has charged Citigroup of misleading investors in a sale of a $ 1 billion CDO. That settlement is supposed to be of $ 285 million, but had been rejected earlier by a court. Since then, both the SEC and Citigroup have jointly appealed.