Citigroup Faces Fraud Suit Claiming $1.1 Billion in Losses

A Citibank branch in San Francisco.

A Citibank branch in San Francisco.

Photographer: David Paul Morris/Bloomberg
  • Investors in Mexican oil services firm sue over loan schemes
  • Bank fired at least 12, cut 2013 profit by $235 million

Citigroup Inc. was sued for fraud by investors and creditors of a bankrupt Mexican oil services firm over claims they were harmed by a loan scheme that also led the bank to cut 2013 profit by $235 million and fire at least a dozen people.

Citigroup’s loans led to the 2014 collapse of the Mexican firm, Oceanografia SA, and caused Dutch lender Rabobank Groep, with investors and creditors, to lose at least $1.1 billion, according to the lawsuit filed Friday in Miami federal court. Rabobank and other investors separately filed a negligence suit in Delaware state court against auditor KPMG LLP. 

Citigroup’s Mexican subsidiary, Banamex, made short-term loans to Oceanografia, which did work for state-run Petroleos Mexicanos, or Pemex. In turn, Pemex repaid the bank. Citigroup Chief Executive Officer Michael Corbat said in February 2014 that $400 million of accounts receivable from Oceanografia were fraudulent. He said the bank was working with Mexican authorities and would find out “who perpetrated this despicable crime.”

Rabobank and the investors claim Citigroup conspired with Oceanografia to accept falsified work estimates even as the oil services firm became increasingly dependent on cash advances to survive. Those Citigroup loans propped up Oceanografia, while Pemex repaid the bank with millions of dollars in interest, according to the complaint.

“Intentional misconduct on the part of Wall Street banks -- including Citigroup specifically -- is far from unfamiliar,” according to the complaint. “Yet again, greed and dishonesty have victimized blameless businesses and investors.”

Mark Costiglio, a Citigroup spokesman, and Manuel Goncalves, a spokesman at KPMG, both declined to comment on the lawsuits. Quinn Emanuel Urguhart & Sullivan LLP, the law firm that filed the lawsuit, provided copies of the complaint. The filing couldn’t be independently confirmed in court records.


SEC Probe

Citigroup has said in regulatory filings that it’s cooperating with an investigation by the U.S. Securities and Exchange Commission and a Justice Department request for information about the fraud. The SEC inquiry has included requests for documents and witness testimony, the bank said in a filing on Friday.  

Mexican authorities placed Oceanografia in bankruptcy and later charged several Citigroup employees with crimes, according to the complaint. None of the creditors who sued have collected money through the bankruptcy, according to the complaint.

The complaint includes claims that the bank violated the Racketeer Influenced and Corrupt Organization Act and engaged in fraud while breaching its fiduciary duty. It seeks compensatory and punitive damages.

Seven shipping companies and service providers, including Blue Marine Technology Group, were among those that sued, as well as nine bondholders, including Ashmore Investment Advisors Ltd.

The short-term lending accelerated rapidly, according to the complaint. In 2009, Oceanografia’s revenue was $288 million and Citigroup made $70 million in cash advances. By 2012, the company had revenue of $920 million, yet was “almost entirely dependent on cash advances,” taking $450 million from Citigroup. 

Cash Advances

Oceanografia’s cash advance requests were subject to a two-step approval process by Citigroup to verify that documents submitted accurately reflected the terms of its contracts with Pemex, according to the complaint. In at least 166 cash requests, Citigroup didn’t satisfy either step, failing to detect falsified documents, according to the complaint.

In February 2014, Citigroup contacted Pemex to discuss the cash advances and learned about Oceanografia’s phony supporting documentation, according to the complaint.

With Pemex aware of this scheme, “Citigroup had no choice but to distance itself from and shift blame to Oceanografia including by becoming a whistle-blower and playing the victim,” according to the lawsuit. “However, Citigroup’s efforts to avoid responsibility are transparent.”

To extract money from Pemex, Citigroup increased the cash flow to Oceanografia, according to the complaint.

“Citigroup, Banamex and Oceanografia knew that Oceanografia would collapse if the cash advance scheme was exposed and Citigroup or Banamex canceled the credit facility,” according to the complaint.

The case is Otto Candies LLC v. Citigroup Inc., 16-cv-20725, U.S. District Court, Southern District of Florida (Miami).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE