Citibank 2010 Annual Report Download - page 290

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conduct (including rules allegedly affecting merchants’ ability, at the
point of sale, to surcharge payment card transactions or steer customers
to particular payment cards). In addition, supplemental complaints filed
against defendants in the class action allege that Visa’s and MasterCard’s
respective initial public offerings were anticompetitive and violated Section 7
of the Clayton Act, and that MasterCard’s initial public offering constituted a
fraudulent conveyance.
Plaintiffs seek injunctive relief as well as joint and several liability for
treble their damages, including all interchange fees paid to all Visa and
MasterCard members with respect to Visa and MasterCard transactions in
the U.S. since at least January 1, 2004. Certain publicly available documents
estimate that Visa- and MasterCard-branded cards generated approximately
$40 billion in interchange fees industry-wide in 2009. Defendants dispute
that the manner in which interchange and merchant discount fees are set,
or the rules governing merchant conduct, are anticompetitive. Fact and
expert discovery has closed. Defendants’ motions to dismiss the pending
class action complaint and the supplemental complaints are pending. Also
pending are plaintiffs’ motion to certify nationwide classes consisting of all
U.S. merchants that accept Visa- and MasterCard-branded payment cards and
motions by both plaintiffs and defendants for summary judgment. Additional
information relating to these consolidated actions is publicly available in
court filings under the docket number MDL 05-1720 (E.D.N.Y.) (Gleeson, J.).
Parmalat Litigation and Other Matters
On July 29, 2004, Dr. Enrico Bondi, the Extraordinary Commissioner
appointed under Italian law to oversee the administration of various
Parmalat companies, filed a complaint in New Jersey state court against
Citigroup and Related Parties alleging that the defendants “facilitated” a
number of frauds by Parmalat insiders. On October 20, 2008, following trial,
a jury rendered a verdict in Citigroup’s favor and in favor of Citibank on
three counterclaims. The court entered judgment for Citibank in the amount
of $431 million on the counterclaims, which is accruing interest. Plaintiff’s
appeal from the court’s final judgment is pending. In addition, prosecutors
in Parma and Milan, Italy, have commenced criminal proceedings against
certain current and former Citigroup employees (along with numerous
other investment banks and certain of their current and former employees,
as well as former Parmalat officers and accountants). In the event of an
adverse judgment against the individuals in question, it is possible that the
authorities could seek administrative remedies against Citigroup. Milan
prosecutors have requested disgorgement of 70 million Euro and a fine of
900,000 Euro. Additionally, Dr. Bondi has purported to file a civil complaint
against Citigroup in the context of the Parma criminal proceedings, seeking
14 billion Euro in damages. In January 2011, a civil complaint was filed
by certain institutional investors in Parmalat securities seeking damages
of approximately 130 million Euro against Citigroup and certain other
financial institutions.
Research Analyst Litigation
In March 2004, a putative research-related customer class action alleging
various state law claims arising out of the issuance of allegedly misleading
research analyst reports concerning numerous issuers was filed against
certain Citigroup entities in Illinois state court. Citigroup’s motion to dismiss
the complaint is pending.
Companhia Industrial de Instrumentos de Precisão
Litigation
A commercial customer, Companhia Industrial de Instrumentos de Precisão
(CIIP), filed a lawsuit against Citibank, N.A., Brazil branch (Citi Brazil), in
1992, alleging damages arising from an unsuccessful attempt by Citi Brazil
in 1975 to declare CIIP bankrupt after CIIP defaulted on a loan owed to
Citi Brazil. The trial court ruled in favor of CIIP and awarded damages that
Citigroup currently estimates as approximately $330 million after taking
into account interest, currency adjustments, and current exchange rates.
Citi Brazil lost its appeal but filed a special appeal to the Superior Tribunal
of Justice (STJ), the highest appellate court for federal law in Brazil. The
4th Section of the STJ ruled 3-2 in favor of Citi in November 2008. CIIP
appealed the decision to the Special Court of the STJ on procedural grounds.
In December 2009, the Special Court of the STJ decided 9-0 in favor of CIIP
on the procedural issue, overturning the 3-2 merits decision in favor of Citi.
Citi Brazil filed a motion for clarification with the Special Court of the STJ.
A decision on that motion is expected in the first or second quarter of 2011.
If the Special Court of the STJ were to decide in Citi Brazil’s favor on the
pending motion for clarification, the effect would be to reinstate the favorable
3-2 decision of the STJ on the merits of the dispute. If the Special Court were
to decide in CIIP’s favor, Citi Brazil expects to file a constitutional action with
the Supreme Court of Brazil seeking to overturn the decision.
Allied Irish Bank Litigation
In 2003, Allied Irish Bank (AIB) filed a complaint in the Southern District
of New York seeking to hold Citibank and Bank of America, former prime
brokers for AIB’s subsidiary Allfirst Bank (Allfirst), liable for losses incurred
by Allfirst as a result of fraudulent and fictitious foreign currency trades
entered into by one of Allfirst’s traders. AIB seeks compensatory damages of
approximately $500 million, plus punitive damages, from Citibank and Bank
of America collectively. In 2006, the Court granted in part and denied in part
defendants’ motion to dismiss. In 2009, AIB filed an amended complaint,
and the parties currently are engaged in discovery.
Settlement Payments
Payments required in settlement agreements described above have been
made or are covered by existing litigation reserves.
* * *
Additional matters asserting claims similar to those described above may be
filed in the future.