Citigroup (NYSE:C) has settled a lawsuit that charged the company with deceiving institutional investors about its exposure to subprime loans in the lead-up to the mortgage meltdown.
The settlement, approved Friday by U.S. District Judge Sidney Stein in Manhattan, ends an effort by International Fund Management of Luxembourg, DekaBank of Germany, the City of Richmond, Va., and other investors to recover losses they allegedly incurred as a result of buying shares of Citigroup common stock over a five-year period starting in January 2004.
Financial terms of the pact were not disclosed.
In their lawsuit, International Fund Management and the other investors charged Citigroup with packaging and selling securities backed by subprime mortgages without disclosing to investors the magnitude of potential losses the bank stood to realize if borrowers whose loans backed the securities defaulted.
Despite accumulating a large portfolio of loans at high risk of default as the housing market declined, Citigroup trumpeted its ability to withstand the downturn, according to the investors, who alleged they suffered losses after Citigroups stock price fell 93%, to $3.50 per share, between October 2007 and January 2009.
Citigroup has denied the allegations. A Citigroup spokeswoman declined to comment on the settlement. A lawyer for International Fund Management did not respond immediately to a request for comment.