Accusing Ambac Financial Group Inc. of hiding the risks it took on by guaranteeing risky mortgage debt, a judge granted preliminary approval for the bond insurer, insurance companies, and some banks to pay $33 million to investors to settle litigation.
U.S. District Judge Naomi Reice Buchwald in Manhattan called the two settlements reached last month "fair, reasonable and adequate." She will consider final approval at a later date.
One accord calls for Ambac to pay $2.5 million already held in escrow, and insurers for its officers and directors to pay $24.6 million. The other accord 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 Nov. 8. New York's highest court, the Court of Appeals, 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 like former Chief Executive Robert Genader 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.