Citigroup pays shareholders for understating sub-prime risks

Citigroup will pay $590 million to shareholders for understating the risks associated with assets backed by subprime mortgages and overstating the value of those assets, HousingWire reported.

According the U.S. District Court Southern District of New York, the plaintiffs, four former owners of Automated Trading Desk, acquired their Citigroup stock through a merger in which Citigroup purchased ATD in exchange for a mix of cash and Citigroup stock.

The plaintiff’s representatives accused Citigroup of misleading the plaintiffs on common stock purchased during the financial crisis between February 26, 2007 through April 18, 2008.

As a result, ATD paid an allegedly inflated price and filed a securities fraud action against Citigroup and its officials. According to the ruling, Citigroup “painted a misleading portrait” of its exposure to a group of debt obligations backed by residential mortgage-backed securities.

Citi gave investors the impression it would not face large losses on its investment, when it actually faced more than $50 billion in potential losses, the court ruled. Therefore, stock investors overpaid for shares.