Citibank 2012 Annual Report Download - page 306

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asserts a variety of state common law claims, alleging that he and other
investors were misled into investing in the funds and were further misled
into not redeeming their investments. The complaint seeks to recover more
than $400 million on behalf of a putative class of investors. Additional
information concerning this action is publicly available in court filings
under the docket number 12-cv-7717 (S.D.N.Y.) (Castel, J.).
In addition, numerous investors in the ASTA/MAT funds have filed
lawsuits or arbitrations against Citigroup and Related Parties seeking
damages and related relief. Although most of these investor disputes have
been resolved, some remain pending.
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 purchasers or issuers of ARS, asserting claims under the
federal securities laws, Section 1 of the Sherman Act and state law arising
from the collapse of the ARS market in early 2008, which plaintiffs contend
Citigroup and other ARS underwriters foresaw or should have foreseen but
failed adequately to disclose. Most of these matters have been dismissed or
settled. Additional information concerning certain of the pending actions
is publicly available in court filings under the docket numbers 08 Civ. 3095
(S.D.N.Y.) (Swain, J.), 10-722, 10-867, and 11-1270 (2d Cir.).
KIKOs
Prior to the devaluation of the Korean won in 2008, 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 won, 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, 2012, there were 88 civil lawsuits filed by SMEs against
CKI. To date, 82 decisions have been rendered at the district court level, and
CKI has prevailed in 64 of those decisions. In the other 18 decisions, plaintiffs
were awarded only a portion of the damages sought. The damage awards
total in the aggregate approximately $28.5 million. CKI is appealing the
18 adverse decisions. A significant number of plaintiffs that had decisions
rendered against them are also filing appeals, including plaintiffs that were
awarded less than all of the damages they sought.
Of the 82 cases decided at the district court level, 60 have been appealed to
the high court, including the 18 in which an adverse decision was rendered
against CKI in the district court. Of the 17 appeals decided at high court level,
CKI prevailed in 11 cases, and in the other six plaintiffs were awarded partial
damages, which increased the aggregate damages awarded against CKI by
a further $10.9 million. CKI is appealing five of the adverse decisions to the
Korean Supreme Court.
Lehman Structured Notes Matters
Like many other financial institutions, certain Citigroup affiliates and
subsidiaries distributed structured notes (Notes) issued and guaranteed by
Lehman entities to retail customers outside the United States, principally
in Europe and Asia. After the relevant Lehman entities filed for bankruptcy
protection in September 2008, certain regulators commenced investigations
and some purchasers of the Notes filed civil actions or otherwise complained
about the sales process. Citigroup has resolved the vast majority of these
regulatory proceedings and customer complaints.
In Belgium, criminal charges were brought against a Citigroup subsidiary
(CBB) and three 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. Both CBB and the Public Prosecutor appealed
the judgment. On May 21, 2012, the Belgian appellate court dismissed all
criminal charges against CBB. The Public Prosecutor has appealed this
decision to the Belgian Supreme Court.
Lehman Brothers Bankruptcy Proceedings
Beginning in September 2010, Citigroup and Related Parties have been
named as defendants in various adversary proceedings in the Chapter 11
bankruptcy proceedings of Lehman Brothers Holdings Inc. (LBHI) and the
liquidation proceedings of Lehman Brothers Inc. (LBI).
On March 18, 2011, Citigroup and Related Parties were named as
defendants in an adversary proceeding asserting claims under federal
bankruptcy and state law to recover a $1 billion deposit LBI placed with
Citibank, N.A., to avoid a setoff taken by Citibank, N.A. against the deposit,
and to recover additional assets of LBI held by Citibank, N.A. and its affiliates.
On December 13, 2012, the court entered an order approving a settlement
between the parties resolving all of LBI’s claims. Under the settlement,
Citibank, N.A. retained $1.05 billion of assets to set off against its claims
and received an allowed unsecured claim in the amount of $245 million.
Additional information concerning this adversary proceeding is publicly
available in court filings under the docket numbers 11-01681 (Bankr.
S.D.N.Y.) (Peck, J.) and 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 asserting objections to proofs of claim
filed by Citibank, N.A. and its affiliates totaling approximately $2.6 billion,
and claims under federal bankruptcy and state law to recover $2 billion
deposited by LBHI with Citibank, N.A. against which Citibank, N.A. asserts a
right of setoff. Plaintiffs also seek avoidance of a $500 million transfer and
an amendment to a guarantee in favor of Citibank, N.A., and other relief.
Additional information concerning this adversary proceeding is publicly
available in court filings under the docket numbers 12-01044 (Bankr.
S.D.N.Y.) (Peck, J.) and 08-13555 (Bankr. S.D.N.Y.) (Peck, J.).