A judge granted preliminary approval last month to a settlement requiring Ambac Financial Group Inc., insurers and some banks to pay $33 million to investors to resolve pending litigation. The bond insurer had been accused of hiding the risks it took on by guaranteeing risky mortgage debt. U.S. District Judge Naomi Reice Buchwald, sitting in Manhattan, called the two settlements reached last month “fair, reasonable and adequate,” in her ruling. The Judge will consider final approval at a later date.
One settlement requires Ambac to pay $2.5 million already held in escrow, and insurers for its officers and directors to pay $24.6 million. The other calls for seven banks that underwrote Ambac debt to pay $5.9 million. Once the nation’s second-largest bond insurer, Ambac filed for bankruptcy protection from creditors last year. The New York Court of Appeals, the state’s highest court, is reviewing a separate restructuring of larger rival MBIA Inc., which like Ambac suffered large losses insuring risky mortgage debt.
Investors accused Ambac and officials, including its CEO, of misleading them into believing the company insured only “the safest” transactions. They said Ambac then guaranteed billions of dollars of risky debt, and wrote credit default swaps to protect investors against default. The lawsuit covered investors who bought Ambac stock and bonds between Oct. 25, 2006 and April 22, 2008, as well as a February 2007 Ambac subordinated debt issue known as a DISCS offering.
Lead plaintiffs in the case are the Public School Teachers’ Pension and Retirement Fund of Chicago, the Arkansas Teachers Retirement System and the Public Employees’ Retirement System of Mississippi. The banks include Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., UBS AG and Wells Fargo & Co.
Source: Insurance Journal
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