Citigroup to pay $730 million to settle claims of misleading investors

Citigroup, the third-largest US bank by assets, agreed to pay $730 million (€564 million) to settle claims it misled debt investors about its condition during the financial crisis.

The deal would resolve a lawsuit by investors who bought Citigroup bonds and preferred stock from May 2006 through November 2008, the New York-based lender said yesterday in a statement.

The accord requires court approval and would be covered by existing litigation reserves, the bank said.

Citigroup is among the Wall Street firms still dealing with the fallout from the crisis, when the bank almost collapsed amid losses tied to subprime mortgages and took a $45 billion bailout.

The company has repaid the rescue. Last year, the firm agreed to pay $590 million to settle a lawsuit brought by stock investors who said they'd been misled.

"At the time they were selling these securities, in reality Citigroup was effectively insolvent," Bernstein Litowitz Berger and Grossmann partner Steven Singer, who represented the debt investors, said in a phone interview.

"They were presenting the company to be in substantially stronger financial position than it in reality was."

Citigroup said in the statement that it still denies the allegations and agreed to the settlement to avoid the cost and uncertainty of litigation.

Shannon Bell, a spokeswoman for the bank, declined to comment further in a phone interview.

The lawsuit was filed in federal court in Manhattan in 2008, with investors claiming Citigroup misled purchasers of 48 issues of its corporate bonds.

Plaintiffs in the case include the Louisiana Sheriffs' Pension and Relief Fund, Minneapolis Firefighters' Relief Association and the City of Philadelphia Board of Pensions and Retirement.

Citigroup's bonds dropped as losses piled up during the collapse of the US mortgage market.

Its $4 billion of 10-year notes, issued in November 2007, slid as low as 79.7 cents on the dollar in 2008, according to data compiled by Bloomberg. The firm lost more than $29 billion in 2008 and 2009.

In 2010, US District Judge Sidney Stein denied part of a motion by Citigroup to dismiss the case. Stein threw out claims that involved alleged lack of disclosure about auction-rate securities and part of the plaintiffs' case related to structured investment vehicles.

Citigroup's stock has gained about 17 per cent this year and was little changed in after-hours trading yesterday, following the settlement's announcement.

Bloomberg