Citibank 2011 Annual Report Download - page 295

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entities against LBHI and its affiliates. The claim objections seek to reduce or
avoid approximately $2 billion in claims relating to terminated derivatives
contracts and to disallow all claims against LBHI to the extent they seek to
recover against the disputed deposit or guarantee. Additional information
relating to this adversary proceeding is publicly available in court filings
under the docket number 12-01044 (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 the docket
number 08-13555 (Bankr. S.D.N.Y.) (Peck, J.).
On September 15, 2008, LBHI subsidiary Lehman Brothers International
(Europe) (LBIE) entered administration under English law. Since that
time, Citigroup and Related Parties have held as custodians approximately
$2 billion of proprietary assets and cash of LBIE. During the course of LBIE’s
administration, Citigroup and Related Parties 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), a right that the administrators for LBIE disputed. On June 28, 2011,
Citigroup and Related Parties entered into a settlement agreement with LBIE
resolving the parties’ disputes with respect to the LBIE proprietary assets and
cash held by Citigroup and Related Parties as custodians. Under the terms
of the settlement, Citigroup and Related Parties have undertaken the return
of LBIE’s proprietary assets and cash and released all claims in respect of
those assets and cash in exchange for releases, the payment of fees and
preservation of certain claims asserted by Citigroup and Related Parties in
LBIE’s insolvency proceeding in England. The settlement does not affect the
deposits, claims or setoff rights at issue in the disputes with LBI and LBHI
described above. Additional information relating to the administration of
LBIE is available at www.pwc.co.uk/eng/issues/lehman_updates.html.
Terra Firma Litigation
In December 2009, plaintiffs, general partners of two related private equity
funds, filed a complaint in New York state court, subsequently removed
to the Southern District of New York, against certain Citigroup affiliates.
Plaintiffs allege 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. 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 as to the
negligent misrepresentation claim, the fraudulent concealment claim and
the fraudulent misrepresentation claim. Additional information relating to
this action is publicly available in court filings under the docket numbers
09 Civ. 10459 (S.D.N.Y.) (Rakoff, J.) and 11-0126 (2d Cir.).
Interbank Offered Rates-Related Litigation and Other Matters
Government agencies in the U.S., including the Department of Justice, the
Commodity Futures Trading Commission and the Securities and Exchange
Commission, as well as agencies in other jurisdictions, including the
European Commission, the U.K. Financial Services Authority, the Japanese
Financial Services Agency (JFSA) and the Canadian Competition Bureau,
are conducting investigations or making inquiries regarding submissions
made by panel banks to bodies that publish various interbank offered rates.
As members of a number of such panels, Citigroup subsidiaries have received
requests for information and documents. Citigroup is cooperating with the
investigations and inquiries and is responding to the requests.
On December 16, 2011, the JFSA took administrative action against
Citigroup Global Markets Japan Inc. (CGMJ) for, among other things, certain
communications made by two CGMJ traders about the Euroyen Tokyo
interbank offered rate (TIBOR) and the yen London interbank offered rate
(LIBOR). The JFSA issued a business improvement order and suspended
CGMJ’s trading in derivatives related to yen LIBOR and Euroyen and yen
TIBOR from January 10 to January 23, 2012. On the same day, the JFSA also
took administrative action against Citibank Japan Ltd. (CJL) for conduct
arising out of CJL’s retail business and also noted that the communications
made by the CGMJ traders to employees of CJL about Euroyen TIBOR had
not been properly reported to CJL’s management team. The inquiries by
government agencies into various interbank offered rates are ongoing.
Additionally, beginning in April 2011, a number of purported class actions
and other private civil suits were filed in various courts against banks that
served on the LIBOR panel and their affiliates, including certain Citigroup
subsidiaries. The actions, which assert various federal and state law claims
relating to the setting of LIBOR, have been consolidated into a multidistrict
litigation proceeding before Judge Buchwald in the Southern District of New
York. Additional information relating to these actions is publicly available in
court filings under docket number 1:11-md-2262 (S.D.N.Y.) (Buchwald, 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 that the risk disclosure was inadequate. As of
December 31, 2011, there were 83 civil lawsuits filed by SMEs against CKI. To