Citibank 2009 Annual Report Download - page 274

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Subprime Mortgage-Related Litigation and Other Matters
Beginning in November 2007, Citigroup and Related Parties have been
named as defendants in numerous legal actions and other proceedings
brought by Citigroup shareholders, investors, counterparties and others
concerning Citigroup’s activities relating to subprime mortgages, including
Citigroup’s exposure to collateralized debt obligations (CDOs), mortgage-
backed securities (MBS), and structured investment vehicles (SIVs),
Citigroup’s underwriting activity for subprime mortgage lenders, and
Citigroup’s more general involvement in subprime- and credit-related
activities.
Securities Actions: Several putative class actions were filed in the
Southern District of New York by Citigroup shareholders alleging violations
of Sections 10 and 20 of the Securities Exchange Act of 1934. On August 19,
2008, these actions were consolidated under the caption IN RE CITIGROUP
SECURITIES LITIGATION, and lead plaintiff and counsel were appointed.
Plaintiffs’ consolidated amended class action complaint alleges, among
other things, that Citigroup’s stock price was artificially inflated as a result
of purportedly misleading disclosures concerning Citigroup’s subprime
mortgage–related exposures. A motion to dismiss the consolidated class
action complaint is pending.
In addition, Citigroup and Related Parties were named as defendants in
two putative class actions filed in New York state court but since removed to
the Southern District of New York. These actions allege violations of Sections
11, 12, and 15 of the Securities Act of 1933, arising out of various offerings of
Citigroup notes during 2006, 2007 and 2008. On December 10, 2008, these
actions were consolidated under the caption IN RE CITIGROUP INC. BOND
LITIGATION. A motion to dismiss the consolidated class action complaint is
pending.
ERISA Actions: Numerous class actions were filed in the Southern District
of New York asserting claims under the Employee Retirement Income
Security Act (ERISA) against Citigroup and certain Citigroup employees
alleged to have served as ERISA plan fiduciaries. On August 31, 2009, the
court granted defendants’ motion to dismiss the consolidated class action
complaint, captioned IN RE CITIGROUP ERISA LITIGATION. Plaintiffs have
appealed the dismissal.
Derivative Actions and Related Proceedings: Numerous derivative
actions have been filed in federal and state courts against various current
and former officers and directors of Citigroup alleging mismanagement in
connection with subprime mortgage–related exposures. Citigroup is named
as a nominal defendant in these actions. Certain of these actions have been
dismissed either in their entirety or in large part. In addition, a committee of
Citi’s Board of Directors is reviewing certain shareholder demands that raise
subprime-related issues.
Underwriting Matters: Certain Citigroup affiliates and subsidiaries have
been named as defendants for their activities as underwriters of securities in
actions brought by investors in securities of issuers adversely affected by the
credit crisis, including AIG, Fannie Mae, Freddie Mac, Ambac and Lehman,
among many others. These matters are in various stages of litigation.
Subprime Counterparty and Investor Actions: Citigroup and Related
Parties have been named as defendants in actions brought in various state
and federal courts, as well as in arbitrations, by counterparties and investors
that have suffered losses as a result of the credit crisis, including: Ambac
Credit Products, LLC, which alleges various claims including fraud and
breach of fiduciary duty in connection with Citigroup’s purchase of credit
protection from Ambac for a $1.95 billion super-senior tranche of a CDO
structured by Citigroup subsidiaries; investors and purported classes of
investors in the Falcon and ASTA/MAT funds, alleging violations of federal
securities and state laws arising out of Citigroup’s sale and marketing
of shares in certain of these funds; and Abu Dhabi Investment Authority,
alleging statutory and common law claims in connection with its $7.5 billion
investment in Citigroup. These matters are in various procedural stages.
Auction Rate Securities-Related Litigation and Other Matters
Beginning in March 2008, Citigroup and Related Parties have been
named as defendants in numerous actions and proceedings brought by
Citigroup shareholders and customers concerning auction rate securities
(ARS). In addition to those matters described below, these have included,
among others, numerous arbitrations filed by customers of Citigroup and
its subsidiaries seeking damages in connection with investments in ARS,
which are in various stages of proceedings, and a derivative action filed
against certain Citigroup officers and directors, which has been dismissed.
A committee of Citi’s Board of Directors is reviewing a demand sent to the
Board following the dismissal of the derivative action.
Securities Actions: Beginning in March 2008, Citigroup and Related
Parties were named as defendants in a series of putative class action
lawsuits related to ARS. These actions have been consolidated into a single
action pending in the Southern District of New York, captioned IN RE
CITIGROUP AUCTION RATE SECURITIES LITIGATION, asserting claims
for federal securities and other statutory and common law violations. On
September 11, 2009, the court granted defendants’ motion to dismiss the
consolidated amended complaint. On October 15, 2009, plaintiffs filed a
further amended complaint, which defendants also have moved to dismiss.