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CIBC Global Financial Crisis Class Action Settlement:
- Who: CIBC will pay $125 million to settle a class action lawsuit with investors.
- Why: The investors claimed CIBC misled them on the size of its exposure to the U.S. subprime market and the volatility of the investments.
- Where: The settlement was reached in Canada.
Investors who sued CIBC after the global financial crisis, accusing it of misrepresenting its risk exposure, have reached a $125 million settlement with the bank.
The multimillion dollar settlement ends class action claims filed in 2008 that alleged the bank misrepresented its exposure to the U.S. subprime mortgage market and other volatile investments ahead of the financial crash, The Star reports.
Under the settlement, investors who bought shares of CIBC between May 31, 2007, and Feb. 28, 2008, may be entitled to some payout from the fund.
Credit Quality of The Mortgages in The Subprime Market Was Low, Leading to Mass Defaults
When first launched, the lawsuit sought to recover almost $4 billion in damages, alleging that CIBC did not properly disclose $11.5 billion in exposure to the subprime mortgage market.
The subprime market involved mortgage-backed securities. The subprime mortgages offered higher rates of return for investors, because the mortgages had high interest rates, but the credit quality on the mortgages were low, eventually leading to mass defaults. The mass defaults sent the market crashing.
The meltdown of the U.S. residential mortgage-backed securities market was a key factor in the global financial crisis.
CIBC spokeswoman Nima Ranawana said the settlement does not admit any liability on behalf of the bank.
“While we believe CIBC’s disclosure was appropriate and met all applicable requirements, we have reached an agreement to avoid further legal costs and put the matter behind us,” she said.
The settlement has been years in the making and was hard won. CIBC lost an appeal in the Supreme Court of Canada in 2015 but settled before the case could go to trial.
“It’s been an extremely long battle, right to the Supreme Court, and back, to the brink of trial,” Rochon Genova Managing Partner Joel Rochon said. Rochon Genova worked on behalf of plaintiffs. “It does go some way to ensure there’s accountability to shareholders in terms of disclosure requirements of banks and other financial institutions.“
The agreement must be approved by the Ontario Superior Court of Justice Jan. 12.
Meanwhile, in 2020, CIBC faced a class action lawsuit over its overtime policy with a judge finding the bank was unjustly enriched by not paying workers overtime properly.
What do you think of this settlement with CIBC? Let us know in the comments!
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