Citibank 2013 Annual Report Download - page 323

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In connection with the Residential Mortgage-Backed Securities Working
Group industry-wide investigation, the Department of Justice has issued
subpoenas seeking information and testimony relating to Citigroup’s
issuance, sponsoring, and underwriting of MBS. Citigroup also has received
a grand jury subpoena seeking information relating to two related MBS
issuances in mid-2007. In addition, Citigroup has received subpoenas
and requests for information from several state attorneys general and the
SEC relating to Citigroup’s MBS-related business activities. Citigroup is
cooperating fully with these inquiries.
Mortgage-Backed Securities and CDO Investor Actions: Beginning in
July 2010, Citigroup and Related Parties have been named as defendants
in complaints filed by purchasers of MBS and CDOs sold or underwritten
by Citigroup. The MBS-related complaints generally assert that defendants
made material misrepresentations and omissions about the credit quality
of the mortgage loans underlying the securities, such as the underwriting
standards to which the loans conformed, the loan-to-value ratio of the loans,
and the extent to which the mortgaged properties were owner-occupied, and
typically assert claims under Section 11 of the Securities Act of 1933, state
blue sky laws, and/or common-law misrepresentation-based causes of action.
The CDO-related complaints further allege that the defendants adversely
selected or permitted the adverse selection of CDO collateral without full
disclosure to investors. Plaintiffs in these actions generally seek rescission
of their investments, recovery of their investment losses, or other damages.
Other purchasers of MBS and CDOs sold or underwritten by Citigroup have
threatened to file additional lawsuits, for some of which Citigroup has agreed
to toll (extend) the statute of limitations.
The filed actions generally are in the early stages of proceedings,
and many of the actions or threatened actions have been resolved
through settlement or otherwise. As of December 31, 2013, the aggregate
original purchase amount of the purchases at issue in the filed suits was
approximately $7.3 billion, and the aggregate original purchase amount
of the purchases covered by tolling agreements with investors threatening
litigation was approximately $1.4 billion. Information concerning certain of
these actions is publicly available in court filings under the docket numbers
12 Civ. 4000 (S.D.N.Y.) (Swain, J.), CV-2012-901036 (Ala. Cir. Ct.) (Price, J.),
12 Civ. 4354 (C.D. Cal.) (Pfaelzer, J.), 650212/2012 (N.Y. Sup. Ct.) (Oing, J.),
653990/2013 (N.Y. Sup. Ct.), CGC-10-501610 (Cal. Super. Ct.) (Kramer, J.),
and 14 Civ. 252 (C.D. Cal.) (Pfaelzer, J.).
On September 2, 2011, the Federal Housing Finance Agency (FHFA),
as conservator for Fannie Mae and Freddie Mac, filed an action against
Citigroup and Related Parties, which was coordinated in the United States
District Court for the Southern District of New York with 15 other related suits
brought by the same plaintiff against various other financial institutions.
Motions to dismiss in the coordinated suits were denied in large part.
In connection with a settlement of these claims under which Citigroup
agreed to pay FHFA $250 million, on May 29, 2013, the court so-ordered a
stipulation of voluntary dismissal with prejudice in FEDERAL HOUSING
FINANCE AGENCY v. CITIGROUP INC., ET AL., and on June 24, 2013, the
court entered orders of voluntary dismissal with prejudice and bar orders in
FEDERAL HOUSING FINANCE AGENCY v. JPMORGAN CHASE & CO., ET AL.,
and FEDERAL HOUSING FINANCE AGENCY v. ALLY FINANCIAL INC., ET AL.,
dismissing with prejudice all claims against Citigroup in those actions.
Additional information concerning these actions is publicly available
in court filings under the docket numbers 11 Civ. 6196, 6188, and 7010
(S.D.N.Y.) (Cote, J.).
Mortgage-Backed Security Repurchase Claims: Various parties to
MBS securitizations and other interested parties have asserted that certain
Citigroup affiliates breached representations and warranties made in
connection with mortgage loans sold into securitization trusts (private-
label securitizations). Typically, these claims are based on allegations
that securitized mortgages were not underwritten in accordance with the
applicable underwriting standards and that misrepresentations were made
during the mortgage application and approval process. Citigroup also has
received numerous inquiries, demands for loan files, and requests to toll
(extend) the applicable statutes of limitation for representation and warranty
claims relating to its private-label securitizations. These inquiries, demands
and requests have been made by trustees of securitization trusts and others.
The vast majority of repurchase claims concerning Citigroup’s private-
label securitizations have not been resolved. Most of these claims and related
activities concern mortgages in 67 private-label securitizations issued by
entities associated with Securities and Banking (S&B) legacy securitizations
during the period from 2005 through 2007. The initial issuance balance
of those securitizations was $59.2 billion, and as of year-end 2013, those
securitizations have a current outstanding balance of $15.8 billion and
realized losses totaling $10.7 billion.
Among these requests, in December 2011, Citigroup received a letter
from the law firm Gibbs & Bruns LLP, which purports to represent a group
of investment advisers and holders of MBS issued or underwritten by
entities associated with S&B legacy securitizations. Through that letter
and subsequent discussions, Gibbs & Bruns LLP has asserted that its clients
collectively hold certificates in 110 MBS trusts purportedly issued and/or
underwritten by those affiliates, and that those affiliates have repurchase
obligations for certain mortgages in these trusts.
To date, plaintiffs have filed actions against Citigroup seeking to enforce
certain of these contractual repurchase claims in connection with three
private-label securitizations. Each of the three actions is in the early stages
of proceedings. In the aggregate, plaintiffs are asserting repurchase claims
as to approximately 2,900 loans that were securitized into these three
securitizations, as well as any other loans that are later found to have
breached representations and warranties. Further information concerning
these actions is publicly available in court filings under the docket numbers
13 Civ. 2843 (S.D.N.Y.) (Daniels, J.), 13 Civ. 6989 (S.D.N.Y.) (Daniels, J.), and
653816/2013 (N.Y. Sup. Ct.).