Citibank 2010 Annual Report Download - page 288

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In addition, beginning in July 2010, several investors, including Cambridge
Place Investment Management, The Charles Schwab Corporation, the Federal
Home Loan Bank of Chicago, the Federal Home Loan Bank of Indianapolis,
and Allstate Insurance Company and affiliated entities, have filed lawsuits
against Citigroup and certain of its affiliates alleging actionable misstatements
or omissions in connection with the issuance and underwriting of residential
MBS. As a general matter, plaintiffs in these actions are seeking rescission of their
investments or other damages. Additional information relating to these actions
is publicly available in court filings under the docket numbers 10 Civ. 11376
(D. Mass.) (Gorton, J.), 10 Civ. 04030 (N.D. Cal.) (Illston, J.), 10-CH-45033
(Ill. Cir. Ct.), 10 Civ. 09105 (C.D. Cal.) (Pfaelzer, J.), 10 Civ. 01463 (S.D. Ind.)
(Lawrence, J.), 11-0555 (Mass. Super. Ct.) and 650432/2011 (N.Y. Sup. Ct.).
Separately, at various times, parties to RMBS securitizations, among
others, have asserted that certain Citigroup affiliates breached representations
and warranties made in connection with mortgage loans placed into
securitization trusts and have sought repurchase of the affected mortgage
loans or indemnification from resulting losses, among other remedies.
The frequency of such demands may increase in the future, and some such
demands may result in litigation.
ASTA/MAT and Falcon-Related Litigation and Other Matters
ASTA/MAT and Falcon were hedge funds managed and marketed by
Citigroup that performed well for many years but suffered substantial losses
during the credit crisis. The SEC is investigating the marketing, management
and accounting treatment of the Falcon and ASTA/MAT funds. Citigroup is
cooperating fully with the SEC’s inquiry.
In addition, several investors in Falcon and ASTA/MAT have filed lawsuits
or arbitrations against Citigroup and Related Parties seeking recoupment of
their alleged losses. Many of these investor disputes have been resolved, and
the remainder 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 ARS. These have included, among
others: (i) numerous arbitrations filed by customers of Citigroup and its
subsidiaries seeking damages in connection with investments in ARS, which
are in various procedural stages; (ii) a consolidated putative class action
asserting claims for federal securities and other statutory and common law
violations, in which a motion to dismiss is pending; (iii) two putative class
actions asserting violations of Section 1 of the Sherman Act, which have been
dismissed and are now pending on appeal; and (iv) a derivative action filed
against certain Citigroup officers and directors, which has been dismissed.
Lehman Structured Notes Matters
Like many other financial institutions, Citigroup, through certain of its
affiliates and subsidiaries, distributed structured notes (Notes) issued and
guaranteed by Lehman entities to retail customers in various countries
outside the United States, principally in Europe and Asia. After the relevant
Lehman entities filed for bankruptcy protection in September 2008, certain
regulators in Europe and Asia commenced investigations into the conduct
of financial institutions involved in such distribution, including Citigroup
entities. Some of those regulatory investigations have resulted in adverse
findings against Citigroup entities. Some purchasers of the Notes have filed
civil actions or otherwise complained about the sales process. Citigroup has
dealt with a number of such complaints and claims on an individual basis
based on the particular circumstances.
In Belgium, Greece, Hungary, Spain, Poland and Turkey, Citigroup
made a settlement offer to all eligible purchasers of Notes distributed by
Citigroup in those countries. A significant majority of the eligible purchasers
accepted Citigroup’s settlement offer, made without admission of liability,
in full and final settlement of all potential claims. A limited number of
eligible purchasers declined to settle and are pursuing civil lawsuits. The
approximate aggregate par value of Notes that are the subject of these suits is
less than $10 million.
Criminal investigations are open in Greece. In Belgium, criminal charges
were brought against a Citigroup subsidiary (CBB) and three current or
former employees. The Public Prosecutor had asked the criminal court to
impose on CBB a fine of 660,000 Euro and a confiscation order of up to
131,476,097.90 Euro, and to sanction the three individual employees. On
December 1, 2010, all defendants were cleared of fraud and anti-money
laundering charges and the related confiscation requests. The court also
rejected certain other charges but convicted all defendants under the
Prospectus Act, and convicted CBB under Fair Trade Practices legislation.
CBB was fined 165,000 Euro, and each individual defendant was fined
427.50 Euro. Sixty-three non-settling civil claimants had made civil claims
in the criminal proceedings with respect to Notes with an aggregate par
value of approximately 2.4 million Euro. Citi was ordered to compensate all
63 claimants for the full par value of their Notes, less the value ultimately
received for their Notes in the Lehman bankruptcies. CBB has appealed
the judgment.
In Hong Kong, regulators have conducted investigations of banks that
distributed Notes, including a Citigroup subsidiary (CHKL). With respect
to certain other banks, the regulators have completed their investigation
and required these banks to compensate some purchasers of Notes for all
or a portion of their losses. The regulators have not yet concluded their
investigation of CHKL. The total subscription amount of the Notes CHKL
distributed in Hong Kong is approximately $200 million.
Lehman Brothers Bankruptcy Proceedings
Citigroup and Related Parties may face claims in the liquidation proceeding
of Lehman Brothers Inc. (LBI), the broker-dealer subsidiary of Lehman
Brothers Holdings Inc. (LBHI), pending before the United States Bankruptcy
Court for the Southern District of New York under the Securities Investor
Protection Act (SIPA). The SIPA Trustee has advised Citigroup and Related
Parties that the Trustee may seek to recover a $1 billion setoff that Citibank,
N.A. took with respect to certain clearing obligations of LBI. In addition,
LBHI or its subsidiaries may assert bankruptcy avoidance and other claims
against Citigroup and Related Parties in their Chapter 11 bankruptcy
proceedings, including, among others, claims seeking the return of a
$2 billion deposit LBHI made with Citibank in June 2008, prior to LBHI’s
collapse. Citibank believes that it has the right to set off against this deposit
claims it has against LBHI arising under derivatives contracts and loan
documents. Additional information relating to the liquidation proceeding
of LBI, captioned IN RE LEHMAN BROTHERS INC., is publicly available in