Citigroup Inc., Discover Financial Services and Student Loan Corp. were sued by a union pension fund over claims that Student Loan Corp. misled investors about increasing losses beginning in 2008.
The Oklahoma Firefighters Pension & Retirement System sued the companies and several Student Loan Corp. officials in federal court in Manhattan today, claiming it lost money when the company’s stock price dropped after information about the losses became public.
Student Loan Corp., formerly a unit of Citigroup, was sold to Riverwoods, Illinois-based Discover in September 2010. The pension fund seeks to represent all Student Loan Corp. investors from Jan. 15, 2008, to Sept. 23, 2010. The company originated and held student loans.
“At the same time STU was failing to properly account for its mounting risks and losses, defendants issued materially false and misleading statements regarding the company’s business and financial results, by telling the investing public that it was well positioned and performing well despite adverse market conditions,” the pension fund said in its complaint.
Student Loan Corp. in September 2010 told the U.S. Securities and Exchange Commission in a public filing that it was taking a $900 million charge, just days after it announced was being sold, according to the complaint. The lender became a wholly-owned subsidiary of Discover on December 31, 2010.
“The suit is baseless and we will seek its prompt dismissal,” said Shannon Bell, a spokeswoman for New York-based Citigroup, in an e-mail. Leslie Sutton, a spokeswoman for Discover, declined to comment.
The case is Oklahoma Firefighters Pension & Retirement System v. Student Loan Corp., 12-CV-895, U.S. District Court, Southern District of New York (Manhattan).