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Banking industry

Citigroup Wins Lawsuit Dismissal, Arbitration Allowance for Auction-Rate Securities Probe

Strategic Insights

— 1 min read

A U.S. District Judge Laura Taylor Swain in New York recently dismissed a lawsuit against Citigroup Inc.'s officers and directors, including CEO Vikram Pandit, for allegedly manipulating the market for auction-rate securities. The lawsuit claimed that the defendants breached their duty to the bank, exposing it to billions of dollars in settlements, fines, and lost business after rigging the ARS market to hide the lack of liquidity. The plaintiffs led by the Louisiana Municipal Police Employees Retirement System argued that the defendants failed to properly inform clients about the risks and the market's crumbling, increasing investor losses.

Key Takeaways:

  • A U.S. District Judge dismissed a lawsuit against Citigroup Inc.'s officers and directors for allegedly manipulating the auction-rate securities market.
  • The lawsuit claimed that the defendants breached their duty to the bank, exposing it to billions of dollars in settlements, fines, and lost business.
  • The judge gave the plaintiffs an opportunity to file an amended complaint by October 1, but failure to do so would result in a judgment dismissing the complaint.
  • Citigroup was among several major banks, including UBS AG, Credit Suisse Group AG, and Goldman Sachs Group Inc., which agreed to buy back tens of billions of dollars in ARS securities from investors.
  • In August 2008, Citigroup agreed to buy $7.3 billion of the debt and pay $100 million in fines, and also pledged to help 2,600 institutional customers unload $12 billion of securities.
  • Bank of America Corporation agreed to buy back $4.5 billion in securities from its clients in October 2008.

Statistics:

  • $330 billion: The size of the auction-rate securities market that collapsed in 2008.
  • $7.3 billion: The amount of ARS securities Citigroup agreed to buyback from individual investors in August 2008.
  • $100 million: The fine Citigroup agreed to pay in connection with the ARS securities issue.
  • $12 billion: The amount of ARS securities that Citigroup pledged to help institutional customers unload in August 2008.
  • $4.5 billion: The amount of ARS securities that Bank of America Corporation agreed to buy back from its clients in October 2008.

Sources:

  • "Profit from the Pros" newsletter by Zacks Investment Research
  • Zacks Equity Research by Zacks Investment Research
  • Zacks Investment Research, Inc.

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