WASHINGTON – A federal judge said Monday she's not ready to approve the government's $75 million settlement with Citigroup Inc. of civil charges it misled investors about billions in potential losses from subprime mortgages.
U.S. District Court Judge Ellen Segal Huvelle asked the Securities and Exchange Commission and the banking titan to submit legal papers in support of the proposed accord. The judge said at a hearing that she needed more information before she could approve it.
The SEC announced the settlement on July 29. The agency had accused Citigroup of repeatedly making misleading statements in calls with analysts and regulatory filings about the extent of its holdings tied to high-risk mortgages.
"We'll provide the court with the additional information requested," SEC spokesman Kevin Callahan said. Shannon Bell, a spokeswoman for New York-based Citigroup, said "We will answer all the judge's questions concerning this matter."
When the housing bust hit in 2007 and borrowers defaulted, Citigroup's losses reached tens of billions of dollars on complex instruments linked to mortgages, pushing the bank to a financial precipice.
Citigroup had said the exposure was $13 billion or less. The SEC said it exceeded $50 billion.
Citigroup was one of the hardest-hit banks during the financial crisis. It received $45 billion from the $700 billion financial bailout — among the largest of the government rescues.
The bank neither admitted nor denied the SEC's allegations under terms of the settlement but did agree to refrain from future violations of the securities laws.
The settlement announced last month marked the second time in weeks that the SEC reached an agreement on punitive action against a major Wall Street firm in connection with the financial crisis. Also in July, Goldman Sachs & Co. agreed to pay $550 million to settle civil fraud charges that it sold mortgage investments without telling buyers that the securities had been crafted with input from a client that was betting on them to fail.
Last year, a federal judge in New York rejected a proposed $33 million settlement between the SEC and Bank of America Corp. to resolve civil charges accusing the bank of misleading shareholders when it acquired Merrill Lynch in the financial crisis in early 2009. The judge reluctantly approved an amended $150 million settlement in February, shortly before the case had been scheduled to go to trial.
Citigroup earned $2.7 billion in the second quarter of this year. That means the proposed penalty represents less than 3 percent of its net income from April through June.
