Banking Law

Citigroup to Settle Investor Suit over CDO Losses for $590M


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Citigroup has agreed to pay $590 million to settle an investor lawsuit that claims the bank failed to disclose its holdings in collateralized debt obligations backed by subprime mortgages.

Citigroup denied wrongdoing and said it settled because of the uncertainties and expense of litigation, report the Wall Street Journal (sub. req.), the Washington Post and the New York Times Dealbook blog.

Navigant Consulting managing director Jeff Nielsen told the Wall Street Journal that the agreement is the largest legal settlement related to CDOs, and the third-largest class action settlement stemming from the financial crisis.

Meanwhile, Citigroup is pursuing a $285 million settlement with the Securities and Exchange Commission. A judge initially rejected the settlement, but a federal appeals court found he may have overstepped his authority, according to Dealbook. The SEC had accused the bank of selling mortgage-backed securities to clients while betting against the investments through short sales.

Citigroup also paid $75 million to resolve a separate case by the SEC that contended the bank made misleading statements about its exposure to subprime mortgages, Dealbook says.

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