Citibank 2015 Annual Report Download - page 302

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clean title to the inventory, insuring it, and attesting that there are no third
party encumbrances. The counterparty is a non-Chinese subsidiary of a large
multinational corporation, and the counterparty’s obligations under the
contracts are guaranteed by the parent company.
On July 22, 2014, Citibank and CGML commenced proceedings in the
Commercial Court in London to enforce their rights against the counterparty
under the relevant agreements in relation to approximately $285 million in
financing. That counterparty and a Chinese warehouse provider previously
brought actions in the English courts to establish the parties’ rights and
obligations under these agreements. In early December 2014, the English
court conducted a preliminary trial concerning, among other issues, the
question of whether Citibank and/or CGML had appropriately accelerated
their counterparty’s obligation to repay under the applicable agreements,
given these facts and circumstances. The High Court in London issued a
judgment on May 22, 2015 holding that the Citigroup affiliates had properly
served bring forward event notices, but that because the metal had not
been properly delivered, the counterparty did not yet have to pay Citibank
and CGML.
As a result of various filings by the parties, on January 15, 2016, Citibank
and CGML were informed by the English Court of Appeal (i) that their
application for permission to appeal certain aspects of the High Court’s
2015 judgment had been granted; and (ii) that the counterparty had also
been given permission to appeal certain aspects of the 2015 judgment.
Various procedural matters continue. Additional information concerning
this action is publicly available in court filings under the claim reference:
Mercuria Energy Trading PTE Ltd & Another v. Citibank, N.A. & Another,
Claim No. 2014 Folio 709, Appeal Nos. 2015/2407 (Citigroup) and 2015/2395
(Mercuria) as regards the appeals.
The financings at issue are carried at fair value. As with any position
carried at fair value, Citigroup adjusts the positions and records a gain or loss
on the Consolidated Statement of Income in accordance with GAAP.
Credit Crisis-Related Litigation and Other Matters
Citigroup and Related Parties have been named as defendants in numerous
legal actions and other proceedings asserting claims for damages and
related relief for losses arising from the global financial credit crisis that
began in 2007. Such matters include, among other types of proceedings,
claims asserted by: (i) individual investors and purported classes of
investors in Citigroup’s common and preferred stock and debt, alleging
violations of the federal securities laws, foreign laws, state securities and
fraud law, and the Employee Retirement Income Security Act (ERISA); and
(ii) individual investors and purported classes of investors in securities and
other investments underwritten, issued or marketed by Citigroup, including
securities issued by other public companies, collateralized debt obligations
(CDOs), mortgage-backed securities (MBS), auction rate securities,
investment funds, and other structured or leveraged instruments, which have
suffered losses as a result of the credit crisis. These matters have been filed in
state and federal courts across the U.S. and in foreign tribunals, as well as in
arbitrations before the Financial Industry Regulatory Authority (FINRA) and
other arbitration associations.
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 U.S. Department of Justice and subdivisions thereof, the Office
of the Special Inspector General for the Troubled Asset Relief Program, 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, trading, servicing and underwriting of CDOs
and MBS, its origination, sale or other transfer, servicing, and foreclosure of
residential mortgages, and its origination and securitization of auto loans.
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 and individual
securities actions filed by investors in Citigroup’s equity and debt securities
in state and federal courts relating to Citigroup’s disclosures regarding its
exposure to subprime-related assets.
Citigroup and Related Parties have been named as defendants in a variety
of putative class actions and individual actions arising out of Citigroup’s
exposure to CDOs and other assets that declined in value during the financial
crisis. Many of these matters have been dismissed or settled. These actions
assert a wide range of claims, including claims under the federal securities
laws, foreign securities laws, ERISA, and state law. Additional information
concerning certain of these actions is publicly available in court filings under
the docket numbers 10 Civ. 9646 (S.D.N.Y.) (Stein, J.), 11 Civ. 7672 (S.D.N.Y.)
(Koeltl, J.), 13-4488, 13-4504, and 15-2461 (2d Cir.).
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 issued by 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.
Mortgage-Backed Securities and CDO Investor Actions: 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 complaints generally assert that defendants made material
misrepresentations and omissions about the credit quality of the assets
underlying the securities or the manner in which those assets were selected,
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.