Tuesday, November 29, 2011

Citi Mortgage Backed Securities settlement rejected by judge

In an interesting development, a judge has rejected Citi's proposed settlement with the SEC for $285 million dollars, saying he does not have enough facts to approve it. Many financial institutions have a history of settling with the SEC over alleged wrongdoing without admission or denial of liability. It is akin to paying a substantial sum of money to sweep the finding under the rug as if it never happened. Well, this judge is having none of that and as of now is sending the case to trial.

In its complaint against Citigroup, the SEC said the bank misled investors by selling assets in a $1 billion fund that they projected would lose money while at the same time the bank took a short position in some of those same underlying assets. According to the SEC, investors lost an amount to the tune of $700 million dollars. If this is the case then paying out $258 million seems like a bargain, which is probably one of the reasons the judge didn't go for it.

It's not the first time nor will it be the last that a large financial institution becomes embroiled in some sort of situation resulting from the whole sub-prime mortgage fiasco. This one just happened to run into a judge that doesn't want to let it go away so easily.

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