NY judge rejects $285M SEC-Citigroup agreement

Larry Neumeister, AP

A judge on Monday used unusually harsh language to strike down a $285 million settlement between Citigroup and the Securities and Exchange Commission over toxic mortgage securities, saying he couldn’t tell whether the deal was fair and criticizing regulators for shielding the public from details of the firm’s wrongdoing.

U.S. District Judge Jed Rakoff said the public has a right to know what happens in cases that touch on “the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives.” In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.

Rakoff said he had spent hours trying to assess the settlement but concluded that he had not been given “any proven or admitted facts upon which to exercise even a modest degree of independent judgment.”

He called the settlement “neither fair, nor reasonable, nor adequate, nor in the public interest.”

The SEC shot back in a statement issued by Enforcement Director Robert Khuzami, saying the deal was all four of those things and “reasonably reflects the scope of relief that would be obtained after a successful trial.”

The SEC had accused the bank of betting against a complex mortgage investment in 2007 – making $160 million in the process – while investors lost millions. The settlement would have imposed penalties on Citigroup but allowed it to deny allegations that it misled investors.

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Foreclosure Mill Mocks Foreclosed Homeowners At Halloween Party

Steven J. Baum claims NY Times is making up the story in order to attack firm.  

Photos New York Times

Joe Nocera, NY Times

On Friday, the law firm of Steven J. Baum threw a Halloween party. The firm, which is located near Buffalo, is what is commonly referred to as a “foreclosure mill” firm, meaning it represents banks and mortgage servicers as they attempt to foreclose on homeowners and evict them from their homes. Steven J. Baum is, in fact, the largest such firm in New York; it represents virtually all the giant mortgage lenders, including Citigroup, JPMorgan Chase, Bank of America and Wells Fargo.

The party is the firm’s big annual bash. Employees wear Halloween costumes to the office, where they party until around noon, and then return to work, still in costume. I can’t tell you how people dressed for this year’s party, but I can tell you about last year’s.

That’s because a former employee of Steven J. Baum recently sent me snapshots of last year’s party. In an e-mail, she said that she wanted me to see them because they showed an appalling lack of compassion toward the homeowners — invariably poor and down on their luck — that the Baum firm had brought foreclosure proceedings against.

When we spoke later, she added that the snapshots are an accurate representation of the firm’s mind-set. “There is this really cavalier attitude,” she said. “It doesn’t matter that people are going to lose their homes.” Nor does the firm try to help people get mortgage modifications; the pressure, always, is to foreclose. I told her I wanted to post the photos on The Times’s Web site so that readers could see them. She agreed, but asked to remain anonymous because she said she fears retaliation.

Let me describe a few of the photos. In one, two Baum employees are dressed like homeless people. One is holding a bottle of liquor. The other has a sign around her neck that reads: “3rd party squatter. I lost my home and I was never served.” My source said that “I was never served” is meant to mock “the typical excuse” of the homeowner trying to evade a foreclosure proceeding.

A second picture shows a coffin with a picture of a woman whose eyes have been cut out. A sign on the coffin reads: “Rest in Peace. Crazy Susie.” The reference is to Susan Chana Lask, a lawyer who had filed a class-action suit against Steven J. Baum — and had posted a YouTube video denouncing the firm’s foreclosure practices. “She was a thorn in their side,” said my source.

A third photograph shows a corner of Baum’s office decorated to look like a row of foreclosed homes. Another shows a sign that reads, “Baum Estates” — needless to say, it’s also full of foreclosed houses. Most of the other pictures show either mock homeless camps or mock foreclosure signs — or both. My source told me that not every Baum department used the party to make fun of the troubled homeowners they made their living suing. But some clearly did. The adjective she’d used when she sent them to me — “appalling” — struck me as exactly right.

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Citigroup to refund investors $285 million for mortgage-related CDO

Jacob Gaffney, Housing Wire

Citigroup (C: 29.39 0.00%) broker-dealer subsidiary sold investors on a $1 billion collateralized debt obligation tied to the housing market, while betting the CDO would default, according to the Securities and Exchange Commission.

Citigroup will return $285 million to investors of the CDO called Class V Funding III.

According to the SEC, Citi neither admits nor denies wrongdoing, in misleading investors on the $1 billion structured finance platform. The SEC said Citigroup Global Markets used its discretion when selecting the mortgages to be placed in the CDO and, thus, potentially knew the quality of the underlying collateral was subpar.

“Citigroup then took a proprietary short position against those mortgage-related assets from which it would profit if the assets declined in value,” the SEC alleges. “The CDO defaulted within months, leaving investors with losses while Citigroup made $160 million in fees and trading profits.”

The SEC then believes Citigroup purchased credit default swaps from Credit Suisse which would pay out in the event the CDO defaulted. According to emails reviewed by the regulator, one experienced CDO trader characterized the Class V III portfolio as “dogsh!t” and “possibly the best short EVER!” in an internal message.

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Massachusetts AG preparing to file foreclosure lawsuits

Aruna Viswanatha, Reuters

Massachusetts on Wednesday said it is preparing to sue big banks related to unlawful foreclosures, dealing another blow to the multi-state talks aimed at resolving those investigations on a national scale.

“I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures,” Massachusetts Attorney General Martha Coakley said in a statement.

Federal and state officials met with representatives of several large U.S. banks this week with hopes of reaching a deal in the coming weeks.

Mortgage servicing units of Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Wells Fargo (WFC.N), Citigroup (C.N), and Ally Financial are accused of coping with an unexpected deluge of mortgage defaults beginning in 2008 by cutting corners and unlawfully rushing through foreclosure paperwork.

A settlement with all 50 states and federal authorities could help the banks move beyond the legal fallout that has dogged them since the peak of the financial crisis.

But the long-running talks — which will hit the one-year mark later this month — have been plagued from the start with criticism from states concerned about the extent of the legal immunity the banks have sought.

Last Friday, California pulled itself from the negotiating team and said the deal under discussion would not provide enough relief to the state’s homeowners.

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