A judge for the US District Court for the Southern District of New York [official website] on Monday refused to approve Citigroup Inc.'s [corporate website] proposed $590 million settlement of a shareholder lawsuit, questioning the reasonableness of some details of the agreement. Judge Sidney Stein requested [IBTimes report] that Citigroup and its shareholders, the bank's opponents in this case, revisit the elements of the settlement, raising concerns over the reasonableness of legal fees and expenses, as well as the method of allocating the settlement funds. Specifically, the judge asked for more information on legal costs in light of the fact that attorneys' fees amounted to $97.4 million [Reuters report], approximately 16.5 percent of the settlement amount, and expenses reached $2.8 million. Stein made this request just days before a fairness hearing scheduled for April 8, in which he will decide whether to sign off on the settlement agreement.
Citigroup's shareholders filed [docket, PDF] this class action suit against the investment bank in 2007, in which they accuse it of making false or misleading statements regarding tens of billions of dollars of toxic mortgage assets. Citigroup filed a motion to dismiss in 2011 upon removal of the action to federal court, but Stein rejected [opinion, PDF] it. In the same month, Judge Jed Rakoff, sitting on the same court as Stein, blocked a proposal [JURIST report] by Citigroup to settle with the US Securities and Exchange Commission (SEC) [official website] for $285 million in another case because he said the SEC failed to set forth any facts as to what Citigroup did that was against the public interest, a decision appealed [notice of appeal, PDF] by the SEC. Rakoff had also rejected [JURIST report] Citigroup's initial settlement agreement of $75 million with the SEC a year earlier. Some critics have cautioned against the growing practice [JURIST op-ed] of judicial settlement blocking, warning that if defendants force the SEC to prove its allegations at trial as opposed to attempted settlement, the SEC might become more selective in bringing enforcement actions.