Citi to Pay $590 Million to Settle Investor Lawsuit

Citigroup (NYSE: C) agreed Wednesday to pay $590 million to settle a shareholder lawsuit tied to its subprime-mortgage exposure, in the third-biggest bank's latest effort to move past the financial crisis.

The proposed class-action settlement will benefit investors who bought Citigroup common shares between Feb. 26, 2007 and April 18, 2008. The company failed to adequately disclose the amount of its exposure to collateralized debt obligations during that time, thus "artificially" inflating the share price, the lawsuit alleged.

When the full extent of Citigroup's exposure to subprime mortgage debt became apparent in late 2007, the bank's share price tumbled, costing its investors. Citigroup shares lost more than half of their value over the time period named in the settlement, falling from $52 in late February 2007 to $25 per share in April 2008. The original complaint, brought by a handful of investors, sought unspecified compensation for their losses.

Citigroup denied the lawsuit's allegations Wednesday and called the proposed settlement "a significant step toward resolving our exposure to claims arising from the period of the financial crisis." The settlement amount is covered by its existing litigation reserves, Citigroup said.

Peter S. Linden of Kirby McInerney LLP, the law firm representing the plaintiffs, also called the deal "a significant result for our clients and the class."

The proposed settlement has already received preliminary approval from Judge Sidney Stein in the United States Southern District of New York.

The proposed settlement amount is significant but not in the top rungs of the amounts companies have paid class-action plaintiffs, observers said. For example, a recently proposed settlement of merchant claims against Visa (NYSE:V), MasterCard (MC) and the big banks clocks in at more than $6 billion.

Paying several hundred million dollars is becoming a cost of moving on for banks that weathered the financial crisis, said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel.

"It's like the tobacco lawsuits," he said. "This is the price to get these issues behind them."

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