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NY Pension Funds Reach $624M Settlement with Countrywide

Source: Global Pensions

Posted on 10 May 2010

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The New York State Common Retirement Fund (CRF) and the five New York City public pension funds have reached a preliminary class action settlement agreement for $624 million with Countrywide Financial Corporation.

Under the proposed settlement, Countrywide would separately pay plaintiffs $600m and, KPMG, Countrywide's accounting firm, would pay $24m.

The lawsuit alleged Countrywide, one of the country's largest mortgage lenders, violated securities laws by "making misstatements and omitting material facts about its policies and procedures for underwriting loans".

Plaintiffs also claimed Countrywide had exposed investors to "excessive, undisclosed risk", despite publicly assuring them of the contrary.

In addition, the complaint claimed KPMG "negligently or recklessly failed to comply with generally accepted auditing standards in auditing Countrywide's financial statements for its fiscal years 2004 through 2006". It added KPMG participated in conveying false and misleading information to the investing public.

Joel Bernstein, senior partner at Labaton Sucharow - the law firm representing the funds - said: "Countrywide's singular effort to overtake its competitors and capture a dominant share of the nation's residential loan market, was the impetus for one of the largest cases to enforce securities laws in recent years. We are very pleased with this result that will help to compensate investors."

The proposed settlement is expected to go before US District judge Mariana Pfaelzer of the US District Court for the Central District of California for preliminary approval. A final approval hearing is likely to be scheduled in September.

The five New York City schemes involved in the class action are the NYC Employees' Retirement System, NYC Teachers' Retirement System, NYC Police Pension Fund, NYC Fire Department Pension Fund and NYC Board of Education Retirement System.

Bank of America - Countrywide's parent company - did not immediately reply to emails seeking comment. KPMG spokesman George Ledwith said: "The settlement concludes the securities class action."

Separately, CRF has committed to invest $500m in New York mortgages currently provided by Fannie Mae, state comptroller Thomas DiNapoli said.

The additional allocation - which was agreed on April 16 - will bring CRF's total investments in New York mortgages to about $10.2bn.

"This is a great way to get a solid fixed-income investment for CRF while at the same time promoting lending for New York homebuyers," DiNapoli said in a statement.

CRF first started investing in New York-only direct mortgage pools in 1981.

The statement added the mortgages are triple-A rated and the investments adhere to CRF's overall fixed income strategy.

In addition, latest available data show the $129.4bn pension fund closed three transactions and graduated three fund managers from its emerging manager program in March, bringing total activity for the month to around $306.1m.