Judge questions fairness of Citigroup $590 million settlement

Mon Apr 1, 2013 7:28pm EDT

A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid

A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012.

Credit: Reuters/Brendan McDermid

(Reuters) - A Manhattan federal judge on Monday signaled he will not rubber-stamp Citigroup Inc's proposed $590 million settlement of a shareholder lawsuit accusing it of hiding tens of billions of dollars of toxic mortgage assets.

U.S. District Judge Sidney Stein asked lawyers for the bank and its shareholders to address several issues at an April 8 fairness hearing, including requested legal fees and expenses of roughly $100 million, and the absence of payments by former Citigroup executives.

Citigroup spokesman Mark Costiglio declined to comment. Peter Linden, a partner at the law firm Kirby McInerney who represents the shareholders, did not immediately respond to requests for comment.

Stein joined other judges in recent years to question the fairness of large legal settlements in the financial industry.

Citigroup awaits a decision from the federal appeals court in New York on whether Stein's colleague Jed Rakoff properly rejected a $285 million settlement with the U.S. Securities and Exchange Commission over the alleged defrauding of investors.

On Thursday, U.S. District Judge Victor Marrero in Manhattan cited that case in delaying a decision to approve the SEC's $602 million insider trading settlement with a unit of Steven Cohen's hedge fund SAC Capital Advisors LP.

The $590 million settlement resolved claims by Citigroup shareholders from February 26, 2007 to April 18, 2008 that the bank failed in those years to properly write down risky debt, often backed by subprime mortgages, and concealed the risks.

Citigroup lost $27.68 billion in 2008, and by March 2009 its market value had sunk roughly $250 billion from the start of the class period. The shareholder settlement is separate from a $730 million accord with bondholders last month.

According to court papers, the shareholder settlement also resolved claims against several former top Citigroup officials, including Chief Executive Charles Prince and senior adviser Robert Rubin. Stein asked whether this was proper.

"Does the absence of any payments from the individual defendants render the settlement unfair to class members who still hold the Citigroup stock they purchased during the class period?" he asked both sides to address.

Stein also asked for more information, including how much a reasonable client would pay to justify fees for lead counsel and other lawyers equal to 16.5 percent of the settlement amount, or about $97.4 million, plus $2.8 million for expenses.

The judge asked both sides to address questions about how settlement funds would be allocated.

Lead plaintiffs included several former employees and directors of Automated Trading Desk Inc, which Citigroup bought in October 2007 for about $680 million.

The case is In re: Citigroup Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 07-09901.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)

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Comments (3)
Telstar wrote:
It appears to me that everything in the financial world is a remarkable scam on all the little people who rely on it.

Unreal.

Apr 01, 2013 8:23pm EDT  --  Report as abuse
xyz2055 wrote:
Seriously? $100M in legal fees? Proof that only the lawyers make out in pretty much any legal action.

Apr 01, 2013 10:32pm EDT  --  Report as abuse
mwilson30058 wrote:
To the Manhattan Federal Judge, My name is Michael Wilson, I was a shareholder of Citibank and Citigroup stock until September 2011. Thank you very much from the bottom of my heart for being an honest Federal Judge. Your honor this is the truth and it is no lie. I contributed to Citibank dividend Re-Investment Plan in the year 1981 – 1982. At the end of the year I had US$300 dollars in the Re-investment Account. I left the money in the Account and continued to hold this account for 31 years even after Citibank Dividend Reinvestment sold out its business to the New Citibank Group Brokerage Firm. I never ever withdrew any interest or dividend from the account over the 31 years. Mr. Federal Judge when I ordered Citi Group to Close my account in September 2011 my 31 year account was only worth US584 dollars. Yes Mr. Federal Judge and then Citi Group has the audacity to send me papers about the Global Action in court and the proposed Settlement. I object to the settlement and refuse to sign any papers whatsoever. I have no intention of being insulted by the Diretors of Citi Group or Citibank and after waiting 31 years receiving a check for US0.79 cents. I am not an idiot and not only does this action and citibanks Brokerage Firm and Bank stink, they smell and I want no part of this dishonesty. Do you know what is the most hurtful part, As a Black Negro and an American Citizen the white people at Citibank did not think I was good enough to gain employment within their White Corporate Establishment with a Master Degree in Information Systems Management 2002 and Bachelors of Business Administration Management Information Systems 1989 and Associates Degree in Applied Science – Databse Specialist in 2008. Your Honor, you and the rest of America dont know and understand the rude, inquisitive, intrusive questions being asked of us a job interviews. Our integrity, honesty, even our training is questioned so that white men in Corporate America can perpetuate and continue denying training and job opportunities in these financial institutions on Wall Street. To you Federal Judge thanks for Displaying some honesty and common sense in a simple situation that shouts loud and clear that poor people are not driving in cadillacs, mercedes benz, and BMWs, we do not live in the Hamptons and dont get paid US$ billions per year to be thieves and dishonest in managing other peoples money. As Black American males we dont even get the opportunity to learn and grow within the American Financial System. Thanks you and God Bless

Apr 02, 2013 3:10am EDT  --  Report as abuse
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