Citigroup has agreed to pay $900 million to settle a lawsuit over fraudulent loans linked to its use of Oracle Flexcube, a financial software system. The lawsuit was brought by institutional investors who claimed that Citigroup made false and misleading statements about the quality of loans it originated and securitized using the system. The settlement is one of the largest ever in a case involving mortgage-backed securities.

Background

Citigroup is one of the largest banks in the world, with operations in more than 160 countries. In the years leading up to the financial crisis of 2008, Citigroup was a major player in the market for mortgage-backed securities, which were pools of home loans that were packaged together and sold to investors. These securities were often backed by subprime mortgages, which were loans made to borrowers with poor credit histories.

Oracle Flexcube is a financial software system that is used by banks and other financial institutions to manage their operations. Citigroup began using the system in 2005, and it quickly became a key part of its mortgage origination and securitization process. However, according to the lawsuit, Citigroup did not properly disclose the risks associated with the loans it originated and securitized using the system.

Allegations

The lawsuit alleged that Citigroup made false and misleading statements about the quality of the loans it originated and securitized using Oracle Flexcube. Specifically, the investors claimed that Citigroup misrepresented the underwriting standards used to originate the loans, as well as the quality of the appraisals used to value the properties securing the loans. The investors also claimed that Citigroup failed to disclose that it had loosened its underwriting standards in order to increase its market share.

The investors further alleged that Citigroup failed to disclose that it had a high percentage of loans that were originated through third-party mortgage brokers, who had a financial incentive to originate loans regardless of the borrower’s ability to repay. Finally, the investors claimed that Citigroup failed to disclose that it had a high percentage of loans that were originated in states with high levels of fraud and foreclosure.

Settlement

Under the terms of the settlement, Citigroup will pay $900 million to the investors who brought the lawsuit. The settlement covers claims related to 48 securitized trusts that were backed by residential mortgages. The settlement is subject to court approval.

In a statement, Citigroup said that it was pleased to have resolved the matter. “We believe that this settlement is in the best interests of our shareholders, and allows us to move forward and focus on the future,” the statement read.

Implications

The settlement is significant for several reasons. First, it is one of the largest ever in a case involving mortgage-backed securities. Second, it highlights the risks associated with the use of financial software systems like Oracle Flexcube. Banks and other financial institutions rely on these systems to manage their operations, but they can also be a source of risk if they are not properly designed or implemented.

Finally, the settlement underscores the importance of transparency and disclosure in the financial markets. Investors rely on accurate and complete information in order to make informed decisions about their investments. When companies fail to provide this information, they can face significant legal and financial consequences.

Conclusion

The settlement between Citigroup and the institutional investors who brought the lawsuit over fraudulent loans linked to Oracle Flexcube is one of the largest ever in a case involving mortgage-backed securities. The settlement highlights the risks associated with the use of financial software systems like Oracle Flexcube, and underscores the importance of transparency and disclosure in the financial markets. As banks and other financial institutions continue to rely on technology to manage their operations, it is essential that they implement these systems in a way that minimizes risk and ensures that investors have access to accurate and complete information.