Citibank 2010 Annual Report Download - page 289

287
court filings under docket number 08-01420 (Bankr. S.D.N.Y.) (Peck, J.).
Additional information relating to the Chapter 11 bankruptcy proceedings of
LBHI and its subsidiaries, captioned IN RE LEHMAN BROTHERS HOLDINGS
INC., is publicly available in court filings under docket number 08-13555
(Bankr. S.D.N.Y.) (Peck, J.).
Citigroup and Related Parties also hold as custodians approximately
$2 billion of proprietary assets and cash of LBHI subsidiary Lehman Brothers
International (Europe) (LBIE), currently in insolvency administration in the
United Kingdom. Citigroup and Related Parties have asserted a contractual
right to retain the proprietary assets and cash as security for amounts owed
to Citigroup and Related Parties by LBIE and its affiliates (including LBHI
and LBI), which the administrators for LBIE have disputed. Additional
information relating to the U.K. administration of LBIE is available at
www.pwc.co.uk/eng/issues/lehman_updates.html.
Terra Firma Litigation
Plaintiffs, general partners of two related private equity funds, filed a
complaint in New York state court (later removed to the Southern District
of New York) against certain Citigroup entities in December 2009, alleging
that during the May 2007 auction of the music company EMI, Citigroup,
as advisor to EMI and as a potential lender to plaintiffs’ acquisition vehicle
Maltby, fraudulently or negligently orally misrepresented the intentions
of another potential bidder regarding the auction. Plaintiffs alleged that,
but for the oral misrepresentations, Maltby would not have acquired EMI
for approximately 4.2 billion British pounds. Plaintiffs further alleged
that, following the acquisition of EMI, certain Citigroup entities tortiously
interfered with plaintiffs’ business relationship with EMI. Plaintiffs sought
billions of dollars in damages. On September 15, 2010, the district court
issued an order granting in part and denying in part Citigroup’s motion
for summary judgment. Plaintiffs’ claims for negligent misrepresentation
and tortious interference were dismissed. On October 18, 2010, a jury trial
commenced on plaintiffs’ remaining claims for fraudulent misrepresentation
and fraudulent concealment. The court dismissed the fraudulent
concealment claim before sending the case to the jury. On November 4,
2010, the jury returned a verdict on the fraudulent misrepresentation claim
in favor of Citigroup. Judgment dismissing the complaint was entered
on December 9, 2010. Plaintiffs have appealed the judgment. Additional
information regarding the action is publicly available in court filings under
docket number 09 Civ. 10459 (S.D.N.Y.) (Rakoff, J.).
KIKOs
Several local banks in Korea, including a Citigroup subsidiary (CKI), entered
into foreign exchange derivative transactions with small and medium-
size export businesses (SMEs) to enable the SMEs to hedge their currency
risk. The derivatives had “knock-in, knock-out” features. Following the
devaluation of the Korean won in 2008, many of these SMEs incurred
significant losses on the derivative transactions and filed civil lawsuits
against the banks, including CKI. The claims generally allege that the
products were not suitable and the risk disclosure was inadequate. As of
December 31, 2010, 80 civil claims had been made by SMEs against CKI. To
date, 55 decisions have been rendered at the district court level, and CKI has
prevailed in 47 of those decisions. In the other eight decisions, the plaintiff
was awarded only a portion of the damages it sought. Damage awards to date
total in the aggregate approximately $6 million. CKI intends to appeal the
eight adverse decisions. CKI also expects a significant number of plaintiffs
to appeal decisions rendered against them, including plaintiffs that were
awarded less than all of the damages they sought.
The Korean prosecutors have also undertaken a criminal investigation of
the local banks, including CKI, based on allegations of fraud in the sale of
these products. This investigation is ongoing. The local banking regulator
also undertook an investigation of the local banks regarding the sale of these
products. This investigation resulted in disciplinary recommendations by the
local banking regulator with respect to certain CKI employees, but CKI itself
was not sanctioned.
Tribune Company Bankruptcy
Certain Citigroup entities have been named as defendants in adversary
proceedings related to the Chapter 11 cases of Tribune Company (Tribune)
pending in the U.S. Bankruptcy Court for the District of Delaware. The
complaints set forth allegations arising out of the approximate $11 billion
leveraged buyout (LBO) of Tribune in 2007. With respect to Citigroup, the
complaints allege claims relating to Citigroup’s role as lender and advisor to
Tribune in connection with the LBO and seek to avoid, recover, subordinate
or disallow payments on LBO debt, as well as approximately $57 million
in lender and advisory fees received by Citigroup and Related Parties in
connection with the LBO. The complaints also assert claims of aiding and
abetting breaches of fiduciary duty by Tribune management as well as
professional malpractice. The complaints have been stayed by court order
pending a confirmation hearing on competing plans of reorganization. If
confirmed, the plan proposed by the Debtors and others, and supported by
Citigroup, would settle all claims relating to Citigroup’s role as lender. On
February 11, 2011, Tribune and its debtor subsidiaries announced that most
classes of voting creditors overwhelmingly approved the Debtors’ plan. The
Bankruptcy Court has scheduled a confirmation hearing for March 7, 2011.
Additional information relating to these actions is publicly available in court
filings under the docket number 08-13141 (Bankr. D. Del.) (Carey, J.).
Interchange Fees Litigation
Beginning in 2005, several putative class actions were filed against Citigroup
and Related Parties, together with Visa, MasterCard and other banks
and their affiliates, in various federal district courts. These actions were
consolidated with other related cases in the Eastern District of New York and
captioned IN RE PAYMENT CARD INTERCHANGE FEE AND MERCHANT
DISCOUNT ANTITRUST LITIGATION. The plaintiffs in the consolidated class
action are merchants that accept Visa- and MasterCard-branded payment
cards, as well as membership associations that claim to represent certain
groups of merchants. The pending complaint alleges, among other things,
that defendants have engaged in conspiracies to set the price of interchange
and merchant discount fees on credit and debit card transactions in violation
of Section 1 of the Sherman Act. The complaint also alleges additional
Sherman Act and California law violations, including alleged unlawful
maintenance of monopoly power and alleged unlawful contracts in restraint
of trade pertaining to various Visa and MasterCard rules governing merchant