Just when we were getting used to a trickle of relatively anemic securities class action settlements tied to the mortgage meltdown, Citi managed to defy our expectations on Wednesday.
In a 16-page order, U.S. District Judge Sidney Stein in Manhattan preliminary approved a $590 million class settlement for investors that bought Citi shares between February 2007 and April 2008. Class counsel at Kirby McInerney filed the plaintiffs’ motion seeking approval of the deal earlier in the day, praising the settlement as “eminently fair considering the substantial recovery to the Settlement Class and the risks and costs attendant to further, protracted litigation.”
Citi is represented in the case by a team from Paul, Weiss, Rifkind, Wharton & Garrison led by Brad Karp. “We are very pleased to have settled on these terms,” Karp told us. In a statement, Citi called the deal “a significant step toward resolving our exposure arising from the period of the financial crisis.” The settlement comes just two days after Citi agreed to pay $24.9 million to resolve a separate class action related to Citi mortgage trusts.
As we’ve reported, the plaintiffs in the case before Judge Stein originally sought to hold Citi liable for concealing its exposure to a whole gamut of investment vehicles, including collateralized debt obligations, residential mortgage-backed securities, and auction rate securities. (At 536 pages, Kirby McInerney’s February 2009 amended complaint was anything but light on allegations.) Stein dismissed everything but the CDO claims in November 2010, however, opening up discovery that eventually included depositions from more than 50 witnesses. The parties met with a mediator earlier this year who helped them reach the $590 million figure.
The settlement is one of the largest in a securities class action since the financial crisis. A $627 million deal that shareholders of Wachovia (now Wells Fargo) inked last summer has been called the biggest, but the deal included a $37 million payment from KPMG. Wells Fargo’s share of the settlement was $590 million–the same as Citi’s deal on Wednesday.
The biggest settlement by a single financial institution, by our count, remains the $624 million settlement that Countrywide Financial Corp. struck in back in 2010. Given that Citi lost far greater market capitalization during the class period in its case–46 percent–we can see why $590 million might not seem like such a bad deal for the bank.
Kirby McInerney defended the settlement in Wednesday’s motion. “The settlement represents a recovery well in excess of the median securities class action settlement in recent years,” wrote partner Ira Press. “Although plaintiffs believe that the defendants knowingly or recklessly misrepresented Citigroup’s CDO exposure and valuation, defendants have raise a host of factual and legal challenges increasing the uncertainty of a favorable outcome absent settlement.”
This article originally appeared in The AmLaw Litigation Daily.
