Citigroup Sued Over CDO Losses

Citigroup Inc. is now on the wrong end of a lawsuit filed by Woori Bank. In it, the goal is to recover losses from the Seoul-based lender’s $95 million investment in debt obligations.

The Korean bank claims Citigroup led it to invest in fraudulent CDOs and related products between 2006 and 2007. It then insists Citigroup used “misleading credit ratings to mask the fact that many of the mortgages underlying its CDOs and residential mortgage-backed securities, or RMBS, were likely to default”. The lawsuit was filed in a New York federal courtroom this week.

Never Disclosed

The lawsuit also reveals more about accusations against Citigroup. Woori said the banking giant “never disclosed to plaintiff — and indeed affirmatively misrepresented and/or concealed — the fact that the ratings on the CDOs purchased by plaintiff falsely portrayed the riskiness of the investments.” It outlines its purchases associated with five Citigroup CDOs and then how it was forced to sell them at a later date and with a drastic loss. The suit contends Citigroup needed to move its “toxic mortgages” off of its books and to do that, it had to dump them on Woori.

Citigroup, known for its banking and other service products, such as credit cards, is facing these tough accusations head on.

Citigroup believes the allegations made in the suit are entirely without merit,

James Griffiths, a Hong Kong-based spokesman for New York-based Citigroup, said by phone. “We will defend the claim vigorously.”

The lawsuit continues:

Defendants knew that the RMBS that they and other major banks were packaging into CDOs included a significant percentage of mortgages that violated basic underwriting standards and were likely to default. Rather than disclose these material facts to investors in the deals it arranged, defendants concealed them so that Citigroup could off- load some of the massive exposure to subprime RMBS that it carried on its own balance sheet to unsuspecting investors.

Citigroup, based in America, is a multi-national financial services corporation headquartered in New York. It was formed from what remains one of the world’s largest mergers when Citicorp and Traveler’s Group merged in 1998. This year, Citi marks its 200th anniversary.

In late 2011, Citigroup and the SEC came to an agreement in another lawsuit which would allow the company to pay $285 million, or 7.56% of that quarter’s profit, to settle a lawsuit that charged that the company did not properly disclose the risk when selling collateralized debt obligations (CDOs) and bet against the same investments the company sold to investors. A federal judge in New York said it wasn’t an applicable resolution between Citigroup and the SEC and ordered the case to proceed. That trial as been set for July 2012.


With offices in more than 140 countries and 16,000 offices total, it current employs around 250,000 people. In 2010, the height of its employment numbers according to Forbes, was at around 267,000. worldwide. It also holds more than 200 million customer accounts and remains the primary dealer in US Treasury securities.

Also according to Forbes, until the massive economic downturn in 2008, Citigroup was both the largest company and the largest bank in the world. It’s currently ranked 10th in size. JPMorgan Chase took over the top spot for the world’s largest company and bank as of late 2011.

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