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Appellate court revives Citigroup’s $285M pact with SEC

Deal would settle claims that bank misled investors with $1B product tied to risky mortgages
June 05, 2014 03:00PM

An appeals court has given life to Citigroup’s $285 million mortgage-securities pact with the U.S. Securities and Exchange Commission, after the bank challenged U.S. District Judge Jed Rakoff’s 2011 refusal to approve the agreement.

The deal would settle SEC claims that Citigroup misled investors with a $1 billion financial product tied to risky mortgages, ultimately costing them over $600 million.

Rakoff previously said the parties involved failed to give “any proven or admitted facts” that could be used to determine the deal’s fairness. But on Wednesday, the court said Rakoff abused his discretion by requiring the SEC to establish the “truth” of the charges brought against the bank.

The Appellate Court said the Citigroup accord would likely ultimately move through to approval, though Rakoff’s previous ruling would be submitted to review and lead to a request for additional information from the parties involved.

Citigroup agreed to pay Fannie Mae $968 million to settle potential claims on 3.7 million home loans last year, in an agreement applied to claims of breaches of warranty and representation on residential mortgages sold to Fannie between 2000 and 2012. [Bloomberg]Julie Strickland