Citigroup Sued by Loreley Over Loss on $1 Billion Sub-Prime CDO Investment
Citigroup Global Markets Inc. (C) was sued by Loreley Financing over almost $1 billion in collateralized debt obligations backed by residential mortgages.
Loreley, a group of nine Jersey-based investment companies formed to invest in CDOs, claimed in a complaint filed in state court in Manhattan today that Citigroup lied about the riskiness of the residential mortgage-backed securities, or RMBS, underlying the investments. The CDOs are now worthless, Loreley said.
Loreley claimed that from September 2006 to July 2007 Citigroup sold it $965 million of notes in 11 CDOs and profited by charging fees and unloading loans likely to lose money. Loreley seeks an order rescinding its purchase of the notes and the return of its $965 billion investment.
“Citigroup devised and implemented several fraudulent schemes through which it was able to mitigate its exposure to the impending collapse of the subprime market even as it continued to earn lucrative fees securitizing subprime RMBS and arranging and marketing CDOs stocked with these increasingly toxic assets to unsuspecting investors such as plaintiff,” Loreley claimed.
Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, said, “We believe the suit is without merit.”
The case is Loreley Financing (Jersey) No. 3 Ltd. v. Citigroup Global Markets Inc., 650202/2012, New York State Supreme Court (New York County).
To contact the reporters on this story: Bob Van Voris in New York State Supreme Court in Manhattan at rvanvoris@bloomberg.net.
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
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