Citigroup misrepresented its financial condition and failed to disclose material information, leading Norges Bank to buy Citigroup stock and bonds at inflated prices between January 2007 and January 2009, the central bank said in the Sept. 17 lawsuit filed in U.S. District Court in Manhattan.
“Citi’s near-demise had its genesis in the company’s increasing willingness to take on risk for the sake of profit, without regard for -- and without disclosing -- the magnitude of the downside exposure it faced if those risks materialized,” the bank said in the complaint.
Norges Bank, through its investment arm, is responsible for investing the assets of Norway’s $459 billion Government Pension Fund Global, the world’s second-biggest sovereign wealth fund. The fund posted a record 633 billion kroner ($107.6 billion) loss in 2008, wiping out gains since the fund started investing the country’s oil revenue in 1996. The so-called oil fund had a 26 percent return last year.
The central bank’s lawsuit names 20 of Citigroup’s current and former directors and executives, including former CEO Charles “Chuck” Prince.
“We believe the suit has no merit and will defend ourselves vigorously,” Citigroup spokeswoman Danielle Romero- Apsilos said in a statement.
The lawsuit adds to a group of other pending complaints against Citigroup for losses suffered by investors. The New York-based bank, today the fourth-largest U.S. bank by deposits, announced “significant declines” in its $55 billion of subprime holdings on Nov. 4, 2007, and reported a $9.8 billion loss for the last quarter of 2007, compared with a $5.1 billion net profit the previous year. The bank had a net loss of $27.7 billion in 2008 and received a $45 billion bailout from U.S. taxpayers.
The Securities and Exchange Commission sued Citigroup in a separate case in July, claiming that the bank, now 18 percent- owned by U.S. taxpayers, had misled investors by not disclosing over $40 billion in subprime-related holdings during 2007. Citigroup agreed to a $75 million fine in a settlement that was approved by a federal judge today.
Citigroup executives repeatedly stated in conferences calls in 2007 that the bank had reduced its subprime exposure by 45 percent to $13 billion. The figure omitted “super-senior” tranches of collateralized debt obligations and financial guarantees called liquidity puts that added more than $40 billion in subprime exposure, according to the SEC’s complaint.
Gary Crittenden, 57, the bank’s chief financial officer, agreed to pay $100,000 in a separate settlement with the SEC. Arthur Tildesley, former head of Citigroup’s investor relations, paid $88,000. Crittenden is named as a defendant in Norges Bank’s lawsuit.
Citigroup’s shares fell 93 percent over the period during which the Norwegian central bank claimed the bank made its misleading disclosures, closing at $3.83 on Jan. 15, 2009, compared with $54.50 two years previously. Citigroup’s 5.85 percent bonds sold in August 2006 and maturing 10 years later lost 0.8 percent during that period.
“Norges Bank’s complaint tracks, in large part, the complaint filed in the securities class action lawsuit currently pending against Citigroup, but Norges Bank believes it will be better served by pursuing its own direct action,” Bunny Nooryani, a spokeswoman for the central bank in Oslo, said in a telephone interview. The central bank is also a plaintiff in the class-action lawsuit, she said.
Nooryani declined to give further details on the amount sought in compensation or why the bank believes it will be better served pursuing its own lawsuit.
The case is Norges Bank v. Citigroup, 10-cv-07202, U.S. District Court for the Southern District of New York (Manhattan).
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