Citibank 2014 Annual Report Download - page 308

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Credit Crisis-Related Litigation and Other Matters
Citigroup and Related Parties have been named as defendants in numerous
legal actions and other proceedings asserting claims for damages and related
relief for losses arising from the global financial credit crisis that began
in 2007. Such matters include, among other types of proceedings, claims
asserted by: (i) individual investors and purported classes of investors in
securities issued by Citigroup alleging violations of the federal securities laws,
foreign laws, state securities and fraud law, and the Employee Retirement
Income Security Act (ERISA); and (ii) investors in securities and other
investments underwritten, issued or marketed by Citigroup, including
securities issued by other public companies, collateralized debt obligations
(CDOs), mortgage-backed securities (MBS), auction rate securities (ARS),
investment funds, and other structured or leveraged instruments, which have
suffered losses as a result of the credit crisis.
In addition to these matters, Citigroup continues to cooperate fully in
response to subpoenas and requests for information from the Securities
and Exchange Commission (SEC), FINRA, state attorneys general, the
Department of Justice and subdivisions thereof, the Office of the Special
Inspector General for the Troubled Asset Relief Program, bank regulators,
and other government agencies and authorities, in connection with various
formal and informal (and, in many instances, industry-wide) inquiries
concerning Citigroup’s mortgage-related conduct and business activities, as
well as other business activities affected by the credit crisis. These business
activities include, but are not limited to, Citigroup’s sponsorship, packaging,
issuance, marketing, trading, servicing and underwriting of CDOs and MBS,
its origination, sale or other transfer, servicing, and foreclosure of residential
mortgages, and its origination, servicing, and securitization of auto loans.
Mortgage-Related Litigation and Other Matters
Securities Actions: Citigroup and Related Parties have been named as
defendants in a variety of putative class actions and individual actions
arising out of Citigroup’s exposure to CDOs and other assets that declined in
value during the financial crisis. Many of these matters have been dismissed
or settled. These actions assert a wide range of claims, including claims
under the federal securities laws, foreign securities laws, ERISA, and state
law. Additional information concerning certain of these actions is publicly
available in court filings under the docket numbers 10 Civ. 9646 (S.D.N.Y.)
(Stein, J.), 11 Civ. 7672 (S.D.N.Y.) (Koeltl, J.), 12 Civ. 6653 (S.D.N.Y.)
(Stein, J.), 13-4488, 13-4504, 14-2545, and 14-3014 (2d Cir.).
Beginning in November 2007, certain Citigroup affiliates also have
been named as defendants arising out of their activities as underwriters
of securities in actions brought by investors in securities issued by public
companies adversely affected by the credit crisis. Many of these matters
have been dismissed or settled. As a general matter, issuers indemnify
underwriters in connection with such claims, but in certain of these matters
Citigroup affiliates are not being indemnified or may in the future cease to be
indemnified because of the financial condition of the issuer.
Regulatory Actions: On July 14, 2014, Citigroup reached a settlement of
the Residential Mortgage-Backed Securities Working Group’s investigation.
The settlement resolved actual and potential civil claims by the Department
of Justice, several state attorneys general, and the Federal Deposit Insurance
Corporation (FDIC) relating to MBS and CDOs issued, structured, or
underwritten by Citigroup between 2003 and 2008. It included a $4.0 billion
civil monetary payment to the Department of Justice, $500 million in
payments to certain state attorneys general and the FDIC, and $2.5 billion in
consumer relief (to be provided by the end of 2018). The consumer relief will
be in the form of financing provided for the construction and preservation of
affordable multifamily rental housing, principal reduction and forbearance
for residential loans, as well as other direct consumer benefits from various
relief programs.
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 complaints generally assert that defendants made material
misrepresentations and omissions about the credit quality of the assets
underlying the securities or the manner in which those assets were selected,
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 majority of these matters have been resolved through settlement or
otherwise. As of December 31, 2014, the aggregate original purchase amount
of the purchases at issue in the pending litigations was approximately
$4.9 billion, and the aggregate original purchase amount of the purchases
covered by tolling agreements with investors threatening litigation was
approximately $1.4 billion. Additional information concerning certain
of these actions is publicly available in court filings under the docket
numbers 08 Civ. 8781 (S.D.N.Y.) (Failla, J.), 654464/2013 (N.Y. Sup. Ct.)
(Friedman, J.), 653990/2013 (N.Y. Sup. Ct.) (Ramos, J.), and CL 14-399
(Vir. Cir. Ct.) (Hughes, 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. 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.
On April 7, 2014, Citigroup entered into an agreement with
18 institutional investors represented by Gibbs & Bruns LLP regarding
the resolution of representation and warranty repurchase claims related
to certain legacy securitizations. Pursuant to the agreement, Citigroup
made a binding offer to the trustees of 68 Citigroup-sponsored mortgage
securitization trusts to pay $1.125 billion to the trusts to resolve these claims,
plus certain fees and expenses. The 68 trusts covered by the agreement
represent all of the trusts established by Citigroup’s legacy Securities and
Banking business during 2005-2008 for which Citigroup affiliates made
representations and warranties to the trusts.