In a November 9, 2010 order (here) in the Citigroup subprime-related securities suit,
Southern District of New York Judge Sidney Stein
dismissed a host of allegations and a number of individual defendants. However,
Judge Stein denied the motion to dismiss as to plaintiffs' claims regarding
Citigroup's exposure to its CDO portfolio, which Judge Stein described as the
plaintiffs' "principal" allegations.
Among the defendants who must answer these allegations
are seven individual defendants, including former Citigroup CEO Charles
Prince and former Citigroup board member (and former Treasury Secretary) Robert Rubin.
As reflected here,
plaintiffs first sued Citigroup and certain of its directors and officers in
November 2007. In their February 20, 2009 consolidated amended complaint, which
named as defendants the company and 14 of its directors and offices, the
plaintiffs alleged that the defendants had mislead investors about the
company's financial health and caused them to suffer damages when the truth
about Citigroup's assets were later revealed.
Judge Stein emphasized the length and weight of the
amended complaint, noting that it is "536 pages long, contains 1,265
paragraphs, and weights six pounds." The amended complaint alleges that
defendants misled investors about its exposure to what Judge Stein described as
a "gallimaufry of financial instruments." However, as
Judge Stein noted, the plaintiffs' "principal grievance" is that
Citigroup "did not disclose that it held tens of billions of dollars of
super-senior tranche CDOs until November 4, 2007," and that even after
that date, until April 2008, the company did not disclose the full extent of
The basic thrust of the plaintiffs' CDO-related
allegations is that though the company disclosed that it was deeply involved in
underwriting CDOs, the company did not disclose that billions of dollars of the
CDOs had not been purchased at all but instead had been retained by Citigroup.
In November 2007, the company disclosed that it was exposed to super-senior CDO
tranches in the amount of $43 billion and that it estimated a write down of $8
to $11 billion of those assets. The plaintiff alleged that this disclosure
omitted an additional $10.5 billion worth of holdings that the company had
hedged in swap transactions.
Read the Citigroup Subprime Securities Suit Narrowed in its
entirety at the D&O
Diary, a blog by Kevin LaCroix.