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.
United States District Judge Rakoff
Assured Wins $90 Million in Damages in RMBS Breach of Contract Trial
On February 6, Judge Rakoff of the Southern District of New York ruled in favor of monoline insurer Assured Guarantee Municipal Corp. against Flagstar Bank FSB after presiding over a bench trial seeking damages for breach of loan-level representations and warranties. Flagstar, a loan originator and RMBS sponsor, contracted for Assured to provide bond insurance on two securitizations of home equity loans totaling approximately $900 million. Flagstar represented to Assured that at the time of origination the loans complied with Flagstar’s underwriting guidelines, but Judge Rakoff concluded in his findings of fact and conclusions of law, based in large part on expert testimony describing the re-underwriting of loan samples, that Flagstar breached certain of its representations. Judge Rakoff awarded Assured $90 million in damages. Findings & Conclusions.
Securitization Class Action Court Order
On June 1, United States District Judge Rakoff issued an order giving reasons for a May 31 order in a class-action suit relating to mortgage pass-through certificates. Among other things, the order dismissed the plantiffs’ claim that the rating agencies served as statutory underwriters of the offerings. Court Order.