Big Settlement for Citi Investors & Class Counsel

MANHATTAN (CN) - Attorneys who snared $590 million for Citigroup shareholders got final settlement approval Thursday but not the nearly $100 million in fees they wanted.

"The court finds that the proposed settlement is fair, reasonable and adequate and should be approved," U.S. District Judge Sidney Stein wrote in a 48-page opinion. "Although the $590 million recovery is a fraction of the damages that might have been won at trial, it is substantial and reasonable in light of the risks faced if the action proceeded to trial."

After spelling out the court's math in determining the proper lodestar that prevailing attorneys at Kirby McInerney used to reach their requested $97.5 million fee, Stein reduced that amount to $70.8 million, which represents 12 percent of the $590 million ward.

"Lead counsel undoubtedly secured an impressive recovery for the class and legitimately expended millions of dollars in attorney and staff hours doing so," Stein wrote. "But the court finds that counsel's proposed lodestar is significantly overstated."

The settlement, which was announced last August, is the end of the line for Citigroup shareholders who bought in between February 2007 and April 2008, then claimed in court that Citigroup misrepresented its exposure to collateralized debt obligations tied to mortgage investments.

Shareholders challenged Citigroup's investment in, and exposure to, risks associated with a "now-infamous species of complex financial instruments; collateralized debt obligations that have as some or all of their collateral residential mortgage backed securities," the judge wrote.

Ultimately, the only surviving claims involved Citigroup's exposure to potential mortgage-backed CDO losses.

"The gravamen of the surviving allegations is that Citigroup's public statements painted a misleading portrait of Citigroup as relatively safe from the market's concerns about potential losses resulting from falling CDO values," Stein wrote.

Shareholders alleged that, from February 2007 to November 2007, Citigroup "gave the impression that [it] had minimal, if any, exposure to CDOs when, in fact, it had more than $50 billion in exposure."

They claimed that the bank continued to overstate the value of CDOs until issuance of a final corrective disclosure in April 2008.

"The overall effect of these alleged misstatements was that the market overvalued Citigroup's assets, or undervalued its liabilities, and thus overvalued Citigroup common stock," according to the court's summary of the complaint.

The lawsuit cited the dramatic drop in the company's stock price of $47.89 per share in 2007 to $2.80 by January 2009.

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