Citibank 2011 Annual Report Download - page 294

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ASTA/MAT and Falcon-Related Litigation and Other Matters
ASTA/MAT and Falcon were alternative investment funds managed and
marketed by certain Citigroup affiliates that suffered substantial losses during
the credit crisis. The SEC is investigating the management and marketing
of the ASTA/MAT and Falcon funds. Citigroup is cooperating fully with the
SEC’s inquiry.
In addition, numerous investors in ASTA/MAT have filed lawsuits or
arbitrations against Citigroup and Related Parties seeking recoupment of
their alleged losses. Although many of these investor disputes have been
resolved, others remain pending. In April 2011, a FINRA arbitration panel
awarded two ASTA/MAT investors $54 million in damages and attorneys’
fees, including punitive damages, against Citigroup. In December 2011,
the United States District Court for the District of Colorado entered an order
confirming the FINRA panel’s award. Citigroup has filed a notice of appeal
to the 10th Circuit Court of Appeals. Additional information relating to
this matter is publicly available in court filings under the docket number
11 Civ. 971 (D. Colo.) (Arguello, J.).
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, many of which have been
resolved. These have included, among others: (i) numerous lawsuits and
arbitrations filed by customers of Citigroup and its affiliates seeking damages
in connection with investments in ARS; (ii) a consolidated putative class
action asserting claims for federal securities violations, which has been
dismissed and is now pending on appeal; (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.
In addition, based on an investigation, report and recommendation from a
committee of Citigroup’s Board of Directors, the Board refused a shareholder
demand that was made after dismissal of the derivative action. Additional
information relating to certain of these actions is publicly available in
court filings under the docket numbers 08 Civ. 3095 (S.D.N.Y.) (Swain, J.),
10-722 (2d Cir.); 10-867 (2d Cir.); 11-1270 (2d Cir.).
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 resolved the vast majority of such actions or complaints either on an
individual basis or through settlement offers, made without admission
of liability, to all eligible purchasers of Notes distributed by Citigroup in
certain countries.
In Belgium, criminal charges were brought against a Citigroup subsidiary
(CBB) and three current or former employees. On December 1, 2010, the
court acquitted all defendants of fraud and anti-money laundering charges
but convicted all defendants under the Prospectus Act, and convicted CBB
under Fair Trade Practices legislation. CBB was fined 165,000 Euro and was
ordered to compensate 63 non-settling claimants for the par value of their
Notes (2.4 million Euro in the aggregate), net of any recovery they receive
in the Lehman bankruptcies. Both CBB and the Public Prosecutor have
appealed the judgment. The appellate court has indicated that it will render
its decision on April 2, 2012.
Lehman Brothers Bankruptcy Proceedings
On March 18, 2011, Citigroup and Related Parties were named as defendants
in an adversary proceeding captioned LEHMAN BROTHERS INC. v.
CITIBANK, N.A., ET AL. In the complaint, which asserts claims under federal
bankruptcy and state law, the Securities Investor Protection Act Trustee
alleges that a $1 billion cash deposit Lehman Brothers Inc. (LBI) placed
with Citibank prior to the commencement of liquidation proceedings should
be returned to the bankruptcy estate, that Citibank’s setoff against the
$1 billion deposit to satisfy its claims against LBI should be set aside, and
that approximately $342 million in additional deposits by LBI currently held
by Citibank and its affiliates should be returned to the estate. Citigroup has
moved to dismiss the adversary complaint. Additional information relating
to this adversary proceeding is publicly available in court filings under the
docket number 11-01681 (Bankr. S.D.N.Y.) (Peck, J.). Additional information
relating to the LBI liquidation proceeding, captioned IN RE LEHMAN
BROTHERS INC., is publicly available in court filings under the docket
number 08-01420 (Bankr. S.D.N.Y.) (Peck, J.).
On February 8, 2012, Citigroup and Related Parties were named as
defendants in an adversary proceeding captioned LEHMAN BROTHERS
HOLDINGS INC. v. CITIBANK, N.A., ET AL. The proceeding principally
concerns proofs of claim Citigroup entities have filed against Lehman
Brothers Holdings Inc. (LBHI) and its affiliates, in which Citigroup entities
have claimed they are owed more than $2.6 billion under derivatives
contracts, loan documents, and clearing agreements, among other
arrangements. Citigroup has further asserted a right to offset approximately
$2.3 billion of these claims against $2 billion deposited by LBHI with
Citibank, N.A. in June 2008, as well as certain other LBHI deposits and other
payables owed by the Citigroup entities.
The complaint asserts claims under state and federal law to recover
the $2 billion deposit and obtain a declaration that it may not be used to
offset any Citigroup entities’ claims, to avoid a $500 million transfer and
an amendment to a guarantee in favor of Citigroup, and for other relief.
The complaint also raises objections to proofs of claim filed by Citigroup