Citibank 2013 Annual Report Download - page 324

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Counterparty and Investor Actions
In 2010, Abu Dhabi Investment Authority (ADIA) commenced an arbitration
(ADIA I) against Citigroup and Related Parties before the International
Center for Dispute Resolution (ICDR), alleging statutory and common
law claims in connection with its $7.5 billion investment in Citigroup in
December 2007. ADIA sought rescission of the investment agreement or, in
the alternative, more than $4 billion in damages. Following a hearing in
May 2011 and post-hearing proceedings, on October 14, 2011, the arbitration
panel issued a final award and statement of reasons finding in favor of
Citigroup on all claims asserted by ADIA. On March 4, 2013, the United States
District Court for the Southern District of New York denied ADIA’s petition
to vacate the arbitration award and granted Citigroup’s cross-petition to
confirm. ADIA appealed, and on February 19, 2014, the United States Court of
Appeals for the Second Circuit affirmed the judgment. Additional information
concerning this action is publicly available in court filings under the docket
numbers 12 Civ. 283 (S.D.N.Y.) (Daniels, J.) and 13-1068-cv (2d Cir.).
On August 20, 2013, ADIA commenced a second arbitration (ADIA II)
against Citigroup before the ICDR, alleging common law claims arising out
of the same investment at issue in ADIA I. On August 28, 2013, Citigroup
filed a complaint against ADIA in the United States District Court for the
Southern District of New York seeking to enjoin ADIA II on the ground that it
is barred by the court’s judgment confirming the arbitral award in ADIA I. On
September 23, 2013, ADIA filed motions to dismiss Citigroup’s complaint and
to compel arbitration. On November 25, 2013, the court denied Citigroup’s
motion for a preliminary injunction and granted ADIA’s motions to dismiss
and to compel arbitration. On December 23, 2013, Citigroup appealed that
ruling to the United States Court of Appeals for the Second Circuit. Additional
information concerning this action is publicly available in court filings
under the docket numbers 13 Civ. 6073 (S.D.N.Y.) (Castel, J.) and 13-4825
(2d Cir.).
Alternative Investment Fund-Related Litigation and
Other Matters
Since mid-2008, the SEC has been investigating the management and
marketing of the ASTA/MAT and Falcon funds, alternative investment
funds managed and marketed by certain Citigroup affiliates that suffered
substantial losses during the credit crisis. In addition to the SEC inquiry,
on June 11, 2012, the New York Attorney General served a subpoena on a
Citigroup affiliate seeking documents and information concerning certain
of these funds; on August 1, 2012, the Massachusetts Attorney General
served a Civil Investigative Demand on a Citigroup affiliate seeking similar
documents and information. Citigroup is cooperating fully with these
inquiries. Citigroup has entered into tolling agreements with the New York
Attorney General concerning certain claims related to the investigations.
Citigroup and Related Parties have been named as defendants in a
putative class action lawsuit filed in October 2012 on behalf of investors
in CSO Ltd., CSO US Ltd., and Corporate Special Opportunities Ltd., whose
investments were managed indirectly by a Citigroup affiliate. Plaintiffs
assert a variety of state common law claims, alleging that they and other
investors were misled into investing in the funds and, later, 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
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 federal and state law claims arising from the
collapse of the ARS market in early 2008, which plaintiffs contend Citigroup
and other ARS underwriters and broker-dealers foresaw or should have
foreseen, but failed adequately to disclose. Many of these matters have
been dismissed or settled. Most of the remaining matters are in arbitrations
pending before FINRA.
KIKOs
Prior to the devaluation of the Korean won in 2008, several local banks in
Korea, including Citibank Korea Inc. (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, 2013, there were 102 civil lawsuits filed by SMEs
against CKI. To date, 84 decisions have been rendered at the district court
level, and CKI has prevailed in 64 of those decisions. In the other 20
decisions, plaintiffs were awarded only a portion of the damages sought.
The damage awards total in the aggregate approximately $37.2 million.
CKI is appealing the 20 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 84 cases decided at the district court level, 62 have been appealed to
the high court, including the 20 in which an adverse decision was rendered
against CKI in the district court. Of the 27 appeals decided or settled at high
court level, CKI prevailed in 17 cases, and in the other 10 cases plaintiffs
were awarded partial damages, which increased the aggregate damages
awarded against CKI by a further $10.1 million. CKI is appealing nine of the
adverse decisions to the Korean Supreme Court and many plaintiffs have filed
appeals to the Supreme Court as well.
As of December 31, 2013, the Supreme Court has rendered five judgments
relating to CKI, and CKI has prevailed in all five cases.