Citibank 2012 Annual Report Download - page 304

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In addition to these litigations and arbitrations, Citigroup continues to
cooperate fully in response to subpoenas and requests for information from
the Securities and Exchange Commission (SEC), FINRA, state attorneys
general, the Department of Justice and subdivisions thereof, bank regulators,
and other government agencies and authorities, in connection with various
formal and informal (and, in many instances, industry-wide) inquiries
concerning Citigroup’s mortgage-related conduct and business activities,
as well as other business activities affected by the credit crisis. These
business activities include, but are not limited to, Citigroup’s sponsorship,
packaging, issuance, marketing, servicing and underwriting of CDOs and
MBS, and its origination, sale or other transfer, servicing, and foreclosure of
residential mortgages.
Mortgage-Related Litigation and Other Matters
Securities Actions: Beginning in November 2007, Citigroup and Related
Parties were named as defendants in a variety of class action and individual
securities lawsuits filed by investors in Citigroup’s equity and debt securities
in state and federal courts relating to the Company’s disclosures regarding its
exposure to subprime-related assets.
Citigroup and Related Parties have been named as defendants in the
consolidated putative class action IN RE CITIGROUP INC. SECURITIES
LITIGATION, pending in the United States District Court for the Southern
District of New York. The consolidated amended complaint asserts claims
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on
behalf of a putative class of purchasers of Citigroup common stock from
January 1, 2004 through January 15, 2009. On November 9, 2010, the court
issued an opinion and order dismissing all claims except those arising out of
Citigroup’s exposure to CDOs for the time period February 1, 2007 through
April 18, 2008. On August 30, 2012, the court entered an order preliminarily
approving the parties’ proposed settlement, pursuant to which Citigroup will
pay $590 million in exchange for a release of all claims asserted on behalf
of the settlement class. A fairness hearing is scheduled for April 8, 2013.
Additional information concerning this action is publicly available in
court filings under the consolidated lead docket number 07 Civ. 9901
(S.D.N.Y.) (Stein, J.).
Citigroup and Related Parties also have been named as defendants
in the consolidated putative class action IN RE CITIGROUP INC. BOND
LITIGATION, also pending in the United States District Court for the Southern
District of New York. The plaintiffs assert claims under Sections 11, 12 and
15 of the Securities Act of 1933 on behalf of a putative class of purchasers of
$71 billion of debt securities and preferred stock issued by Citigroup between
May 2006 and August 2008. On July 12, 2010, the court issued an opinion
and order dismissing plaintiffs’ claims under Section 12 of the Securities Act
of 1933, but denying defendants’ motion to dismiss certain claims under
Section 11. Fact discovery began in November 2010, and plaintiffs’ motion
to certify a class is pending. Additional information concerning this action is
publicly available in court filings under the consolidated lead docket number
08 Civ. 9522 (S.D.N.Y.) (Stein, J.).
Citigroup and Related Parties also have been named as defendants in a
variety of other putative class actions and individual actions arising out of
similar facts to those alleged in the actions described above. These actions assert
a wide range of claims, including claims under the federal securities laws,
Section 90 of the Financial Services and Markets Act of 2000 (Eng.), ERISA, and
state law. Additional information concerning these actions is publicly available
in court filings under the docket numbers 09 Civ. 7359 (S.D.N.Y.) (Stein, J.), 09
Civ. 8755 (S.D.N.Y.) (Stein, J.), 11 Civ. 7672 (S.D.N.Y.) (Koeltl, J.), 12 Civ. 6653
(S.D.N.Y.) (Stein, J.), 12 Civ. 9050 (S.D.N.Y.) (Stein, J.), and Case No. 110105028
(Pa. Commw. Ct.) (Sheppard, J.).
Beginning in November 2007, certain Citigroup affiliates also have
been named as defendants arising out of their activities as underwriters of
securities in actions brought by investors in securities of public companies
adversely affected by the credit crisis. Many of these matters have been
dismissed or settled. As a general matter, issuers indemnify underwriters
in connection with such claims, but in certain of these matters Citigroup
affiliates are not being indemnified or may in the future cease to be
indemnified because of the financial condition of the issuer.
Regulatory Actions: On October 19, 2011, in connection with its
industry-wide investigation concerning CDO-related business activities, the
SEC filed a complaint in the United States District Court for the Southern
District of New York regarding Citigroup’s structuring and sale of the Class V
Funding III CDO transaction (Class V). On the same day, the SEC and
Citigroup announced a settlement of the SEC’s claims, subject to judicial
approval, and the SEC filed a proposed final judgment pursuant to which
Citigroup’s U.S. broker-dealer Citigroup Global Markets Inc. (CGMI) agreed
to disgorge $160 million and to pay $30 million in prejudgment interest
and a $95 million penalty. On November 28, 2011, the court issued an order
refusing to approve the proposed settlement and ordering trial to begin on
July 16, 2012. The parties appealed from this order to the United States Court
of Appeals for the Second Circuit, which, on March 15, 2012, granted a stay of
the district court proceedings pending resolution of the appeals. The parties
have fully briefed their appeals, and the Second Circuit held oral argument
on February 8, 2013. Additional information concerning this matter is
publicly available in court filings under the docket numbers 11 Civ. 7387
(S.D.N.Y.) (Rakoff, J.) and 11-5227 (2d Cir.).
Mortgage-Backed Securities and CDO Investor Actions and
Repurchase Claims: Beginning in July 2010, Citigroup and Related Parties
have been named as defendants in complaints filed by purchasers of MBS
and CDOs sold or underwritten by Citigroup. The MBS-related complaints
generally assert that the defendants made material misrepresentations and
omissions about the credit quality of the mortgage loans underlying the
securities, such as the underwriting standards to which the loans conformed,
the loan-to-value ratio of the loans, and the extent to which the mortgaged
properties were owner-occupied, and typically assert claims under Section 11
of the Securities Act of 1933, state blue sky laws, and/or common-law
misrepresentation-based causes of action. The CDO-related complaints
further allege that the defendants adversely selected or permitted the adverse
selection of CDO collateral without full disclosure to investors. The plaintiffs