LAWSUITS/PRE-TRIAL
Citigroup-SEC Trial Is Delayed by Federal Appeals Court Citigroup Inc. (C) and the U.S. Securities and Exchange Commission won a delay in the trial of a lawsuit the agency brought against the bank while an appeals court considers a judge’s refusal to approve their $285 million settlement.
In November, U.S. District Judge Jed Rakoff declined to approve the accord resolving claims that New York-based Citigroup, the third-biggest U.S. bank, misled investors in a $1 billion financial product linked to risky mortgages. He ordered them to go to trial, which was scheduled for July 16.
“The SEC and Citigroup have made a strong showing of likelihood of success in setting aside the district court’s rejection of their settlement,” the court wrote.
In his decision, Rakoff criticized the agency’s practice of settling without requiring the subject of the allegations to admit wrongdoing, and said the proposed accord was “neither fair, nor reasonable, nor adequate, nor in the public interest.” The agreement didn’t provide him with “any proven or admitted facts” to inform his judgment, he said.
Rakoff didn’t return a call seeking comment on the appeals- court ruling. Danielle Romero-Apsilos, a Citigroup spokeswoman, said the company was pleased with the appeals court’s ruling.
“We agree to settlements when the terms reflect what we reasonably believe we could obtain if we prevailed at trial, without the risk of delay and uncertainty that comes with litigation,” Robert Khuzami , director of the SEC’s enforcement division, said in a statement yesterday. “This settlement approach preserves resources that we can use to stop other frauds and protect other victims.”
In December, the appeals court halted the lower-court proceedings until it made the ruling it did yesterday.
The appeals court said yesterday that while it found likelihood of success on the appeal for the purposes of halting the lower-court proceedings, that didn’t mean the panel that hears the merits of the case will do so.
The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-05227, U.S. Court of Appeals for the Second Circuit (New York). The district court case is 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).
NEW LAWSUITS
JPMorgan Sued by Assured Guaranty Over Mortgage Securities Assured Guaranty Corp.
(AGO) sued JPMorgan Chase & Co.’s EMC Mortgage and Bear Stearns units in New York state court, accusing them of making misrepresentations to market mortgage- backed securities.
The lawsuit was brought in connection with a mortgage- backed securities transaction known as SACO I Trust 2005-GPI, sold in September 2005, which has experienced cumulative losses of more than $75 million, resulting in more than $43 million in claims to be paid by the plaintiff, a New York-based unit of Hamilton, Bermuda-based insurer Assured Guaranty Ltd.
“The transaction that Bear Stearns marketed and effectuated based on its materially false and misleading representations and disclosures has failed miserably,” Assured Guaranty said in its complaint. “An overwhelming percentage of the loans that Bear Stearns securitized in the transaction either have been written off as total losses or are severely delinquent.”
EMC Mortgage was a unit of Bear Stearns Cos. until the investment bank was bought by JPMorgan (JPM) in 2008.
Jennifer Zuccarelli , a spokeswoman for New York-based JPMorgan, didn’t immediately return a phone message seeking comment on the lawsuit.
The case is Assured Guaranty Corp. v. EMC Mortgage LLC, 650805/2012, New York State Supreme Court (Manhattan.)
Morgan Stanley Sues Sterling Stamos Over $17.6 Million
Morgan Stanley sued Sterling Stamos funds over $17.6 million in distributions, which it claims were withheld from a hedging affiliate that owned units in a liquidating trust set up by the money management firm
The Sterling Stamos firm was established by Peter Stamos, chairman of Major League Baseball’s investment advisory board, with the New York Mets owners as partners, and has $9.5 billion of assets under management, according to court documents.
The firm’s funds told Morgan Stanley they were holding distributions in escrow because they feared they would face competing claims on the money from two of the investment bank’s units even after being told there was no risk of that, Morgan Stanley said in a filing in New York state court yesterday.
“Even with these airtight assurances, defendants continue to refuse to turn over the funds due to MS hedging,” it said in the filing.
Morgan Stanley is seeking return of the money, plus interest. Stamos didn’t immediately return a call seeking comment on the lawsuit.
The case is Morgan Stanley & Co. v. Sterling Stamos Security Fund LP, 650796/2012, Supreme Court of the State of New York, County of New York.
