Citigroup Sued by Failed Hedge Fund Over 2008 Crisis Trades

  • Millennium Global Emerging Credit Fund is in liquidation
  • Liquidators say Citigroup didn't properly value investments

A failed hedge fund, whose manager was jailed for fraud, sued Citigroup Inc. over allegations the bank undervalued assets when it closed out trades at the height of the 2008 financial crisis.

Liquidators of Millennium Global Emerging Credit Fund Ltd., which had almost $1 billion in losses, said Citigroup terminated positions too quickly and at rates that didn’t reflect the market, according to court papers filed in October and made available last week. The liquidators are seeking about $53 million in damages.

Citigroup said the positions, linked to the debt of Sri Lanka, Uganda, a Zambian sugar company and a brewer from the Dominican Republic, were illiquid and hard to value even in good market conditions, according to its defense papers. The bank admitted that it mis-valued some trades but “the adjustments are significantly smaller than Millennium claims,” it said in its response to the lawsuit filing.

Millennium Global Investments Ltd., the London-based money manager founded by former Goldman Sachs Group Inc. executive Michael Huttman, liquidated the Global Emerging Credit Fund in October 2008 when lenders withdrew credit. The fund’s manager, Michael Balboa, was sentenced to four years in prison last year for inflating the value of Nigerian sovereign debt in its portfolio.

Officials at KPMG in Bermuda, who are liquidating the fund, declined to comment. Citigroup said in a statement that it is “vigorously defending” the claims.

51 Transactions

Citigroup “failed to use commercially reasonable procedures” when it terminated positions after the default in October 2008, Millennium said in the suit. When the 51 open transactions were closed out, the bank agreed to pay Millennium about $6.8 million. The fund calculated that Citigroup should actually pay about $53 million.

Investors in the Global Emerging Credit Fund sued Millennium and others in a 2012 New York lawsuit. The case settled in 2014, with the investors receiving about $15 million.

When Balboa was sentenced, the judge ordered that he pay more than $390 million in restitution. His lawyer told the judge that prosecutors recognized that the fund’s collapse stemmed from the 2008 crisis, not Balboa’s actions.

KPMG said that investors haven’t received anything from the liquidation and that future payments were unlikely, in a statement posted on its website in August.

The case is Millennium Global Emerging Credit Master Fund Ltd. v. Citigroup Global Markets Ltd., High Court of Justice, Queen’s Bench Division, Commercial Court: CL-2015-000014

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