Major RMBS Settlement Between Citigroup and Trustees Approved by New York State Supreme Court

Compass Lexecon Senior Consultant Professor Bradford Cornell was retained by Michael Kraut, Rollin Chippey, II and Benjamin Smith of Morgan, Lewis & Bockius LLP, Jean-Marie Atamian of Mayer Brown LLP and Thomas Ross Hooper of Seward & Kissel LLP, to advise Deutsche Bank, HSBC, Law Debenture Trust Company of New York and U.S. Bank (the Trustees), on a $1.125 billion offer by Citigroup to settle claims relating to representations, warranties and documentation on mortgages conveyed to 68 RMBS Trusts. Professor Cornell provided a report to the Trustees advising them on the reasonableness and adequacy of the proposed settlement for each of the 206 loan groups within the 68 Trusts. He subsequently submitted three supplemental reports to reflect new developments after the submission of his original report. The Trustees acted in accordance with Professor Cornell’s recommendations and accepted the settlement for 199 loan groups.

The Trustees then asked the New York State Supreme Court to approve the settlement for those loan groups. No objections were filed. Justice Marcy Friedman reviewed Professor Cornell’s credentials and his analysis. She found him to be a highly regarded specialist and that the Trustees’ reliance on his report and advice (along with that of three subject matter experts) was “significantly probative of the Trustees’ prudence.” Justice Friedman ruled that each of the Trustees acted within the bounds of its discretion, reasonably and in good faith. She barred Certificate holders, Noteholders, and any other parties claiming rights in any settling Trust, from asserting claims against any Trustee with respect to its evaluation of the settlement. Professor Cornell was supported by a team including Jerry Lumer, Neal Lenhoff, Kevin Hartt and Donnie Hong, in Compass Lexecon’s Chicago office, and many others.