Citigroup Must Contend With $1B New York CDO Lawsuit, Says Appeals Court

A New York appeals court says that Citigroup (C) must face a collateralized debt obligation lawsuit accusing the firm of lying about the risks involved in nearly $1 billion of securities. The plaintiff is Loreley Financing, a group of investment companies in the Channel Islands that was set up to invest in CDOs. It has made similar allegations in separate CDO fraud cases against other banks.

In 2012, Loreley sued Citigroup Global Markets Inc. in New York State Supreme Court in Manhattan. The plaintiff alleged that the bank secretly selected the most high-risk mortgages for sale in CDOs while purchasing credit default swaps in order to bet against them. The investment group says that Citigroup employed a similar strategy to help clients get rid of mortgage-backed securities that were toxic.

According to Loreley, it purchased $965 million of notes through Citigroup, which then made money by charging fees and getting rid of loans that were likely to sustain losses. The investment group wants the purchases rescinded and its money returned.

Citigroup tried to get the CDO fraud case dismissed, contending that Loreley has not demonstrated that it depended on bank documents when buying securities. However, although disclaimers in documents between “sophisticated commercial parties” are generally sufficient to protect sellers, the appeals court found that the banks’ disclosures failed to address the omissions and misrepresentations that the plaintiff is claiming. (It was also this appeals court that in another case decided that Goldman Sach’s (GS) wasn’t protected from its disclosures in a $1 billion securities fraud lawsuit over the Point Pleasant and Timberwolf CDOs. That CDO fraud was filed by Basis Capital Funds Management Ltd.)

Unfortunately, in the wake of the economic crisis, a lot of institutional and individual investors lost money in their CDO and MBS investments. The SSEK Partners Group is here to help these entities and individuals get their losses back. Contact our securities law firm today.

Citigroup Must Face Fraud Claim Over $1 Billion in CDOs, Bloomberg, May 8, 2014

Loreley Financing (Jersey) No. 3 Ltd. v. Citigroup Global Markets Inc., Justia

Citigroup sued for fraud over $1 billion of CDOs, Reuters, January 24, 2014

More Blog Posts:
$11M Award Against Citi is Vacated by the New York Supreme Court, Stockbroker Fraud Blog, January 30, 2014

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice, Stockbroker Fraud Blog, September 17, 2013

Citigroup and Royal Bank of Scotland Fail Federal Stress Test, Institutional Investor Securities Blog, March 26, 2014