On remand following a Second Circuit decision vacating his June 2011 rejection of a settlement between Citigroup and the SEC, Judge Jed Rakoff of the Southern District of New York approved the settlement, finding that it met the requirements articulated by the Second Circuit. In the settlement, Citigroup has agreed to pay US$285 million to resolve fraud claims stemming from the sale of mortgage-backed securities. Additionally, in its August 1, 2014, Form 10-Q, Citigroup stated that the SEC had advised Citigroup that it had concluded its investigation of Citigroup’s MBS practices and did not intend to recommend an enforcement action. Opinion. 10-Q Excerpt.
On December 4, the European Commission announced that it had fined eight international banks a total of more than 1.7 billion for their participation in illegal cartels in markets for financial derivatives covering the European Economic Area.
Using the cartel settlement procedure, the Commission reached two separate decisions; one decision involved seven separate bilateral infringements relating to interest rate derivatives denominated in Japanese yen. The companies involved were UBS, RBS, Deutsche Bank, JPMorgan, Citigroup and RP Martin.
The other decision was made in relation to a collusion by four banks in relation to interest rate derivatives denominated in euro. The banks were Barclays, Deutsche Bank, RBS and Société Générale. Utilizing the Commission’s 2006 Leniency Notice, Barclays and UBS received complete immunity from fines. Announcement.
On September 27, Judge Louis L. Stanton of the Southern District of New York denied a motion by JPMorgan, Citigroup and several other banks to dismiss a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving $388 million in RMBS. Judge Stanton rejected the defendants’ arguments that the claims were barred by the statute of limitations, finding that publicly available information about troubles in the mortgage industry in 2007 did not put the plaintiff on notice of facts constituting an alleged violation of federal securities laws in connection with the specific transactions at issue. Judge Stanton also held that the FDIC’s allegations of misstatements in the offering documents were sufficiently detailed to survive the pleading stage. The court concluded that it was premature to rule on whether a defendant may be liable under Section 11 of the Securities Act of 1933 when it did not underwrite the particular tranche of a securitization that the plaintiff purchased. Opinion.
On April 22, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed as time-barred the Federal Deposit Insurance Corporation’s (FDIC) $31 million suit against JPMorgan Chase & Co., Bank of America, Citigroup and Deutsche Bank AG related to the sale of RMBS originated by Countrywide. FDIC sued as receiver for Strategic Capital Bank. Judge Pfaelzer held that a reasonable investor in Countrywide securities could have sued before May 22, 2008, and therefore a reasonably diligent investor should have discovered alleged misstatements in the offering documents before that date. The Court held that the statute of limitations for later-filed federal claims was not tolled by an earlier action because it was filed in state court, and the plaintiff had not purchased any of the same tranches as Strategic Capital Bank. Decision.
On April 2, the National Credit Union Administration (NCUA), an independent federal agency that supervises and charters federal credit unions, reached a $165 million settlement with Bank of America, stemming from BofA’s sale of RMBS to failed credit unions. Bank of America did not admit any fault in the agreement. NCUA previously reached similar settlements with Citigroup, Deutsche Bank and HSBC. NCUA did not file a lawsuit against Bank of America, although litigation is pending between NCUA and several other financial institutions. Press Release.
On January 24, Impac Funding Corp. settled a lawsuit brought by Citigroup Global Markets Inc. alleging violations of Sections 18 and 20 of the Securities Exchange Act and negligent misrepresentation based on alleged misstatements in the Pooling and Servicing Agreement for an RMBS trust. Judge Mariana R. Pfaelzer of the Federal District Court for the Central District of California approved the settlement, which requires Impac to pay Citigroup $3.1 million in cash or securities of Impac Mortgage Holdings. Motion for Approval of Settlement. Order Approving Settlement.
Sealink Funding Limited commenced an action against Citigroup Inc. and its affiliates in New York state court by a summons with notice dated November 7, 2012. Sealink alleges that Citigroup made false and misleading statements in connection with the sale of $513 million in RMBS. It asserts causes of action for common law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and contract claims including rescission, restitution and mutual mistake. Sealink alleges that defendants made material misrepresentations and omissions regarding the underwriting standards used in connection with the underlying mortgage loans, the statistical characteristics of those loans, including loan-to-value and combined-loan-to-value ratios and the percentage of owner-occupied properties, the validity of the assignments of the loans to the trusts, and the entitlement of the trusts to receive interest and principal payments on the loans. Sealink seeks $513 million in damages and additional $513 million in punitive damages. Summons.
On September 5, 2012, German bank IKB Deutsche Industriebank AG filed summonses with notice against Goldman Sachs and Citigroup in the Supreme Court of the State of New York, New York County claiming $210 million in losses. In two separate actions, the bank alleges that Goldman Sachs and Citigroup provided offering materials that misrepresented or omitted material information about the originators’ underwriting practices, the transfer of loans to the relevant trusts, and the ability of the trusts to recoup interest and principal on the loans. IKB asserted claims for fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, rescission, restitution, and mutual mistake. Goldman Sachs Complaint. Citigroup Complaint.
On August 27, lead plaintiffs City of Ann Arbor Employees’ Retirement System and Greater Kansas City Laborers Pension Fund submitted an unopposed motion seeking preliminary approval of a settlement of claims against certain Citigroup entities and their officers under Sections 11, 12, and 15 of the Securities Act of 1933. Plaintiffs originally sued in connection with eighteen RMBS securitizations issued by Citigroup, but the court dismissed the claims as to all but two of those securitizations for lack of standing. The settlement resolves the claims relating to those remaining two securitizations. Under the terms of the proposed settlement, $24,975,000 would be distributed among the plaintiff class such that if claims are submitted by all eligible certificate-holders, the average recovery will amount to roughly $13.25 per $1,000 in initial face value of the certificates. The two sides arrived at this settlement following mediation sessions held before retired U.S. District Judge Layn Phillips. Motion.
On August 10, the FDIC in its capacity as receiver for Colonial Bank filed five lawsuits – three in Alabama state court, one in New York federal court, and one in California federal court – seeking $741 million in damages from a number of investment banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup, Inc., and others, for making allegedly false and misleading statements that induced Colonial Bank into buying mortgage-backed securities. The FDIC alleges that the banks made numerous false and misleading statements in the offering documents for the RMBS regarding the credit quality of the mortgage loans underlying the securities. The three Alabama cases each assert two causes of action under the Alabama Securities Act, as well as causes of action under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (Securities Act). The New York and California cases each assert causes of action under Sections 11 and 15 of the Securities Act.
Complaint: Alabama – FDIC v Bank of America, et al.
Complaint: Alabama – FDIC v Citigroup Mortgage Loan Trust, et al.
Complaint: Alabama – FDIC v Countrywide Securities Corp, et al.
Complaint: New York – FDIC v Chase Mortgage Finance Corp., et al.
Complaint: California – FDIC v Countrywide Securities Corp, et al.