Securities class action filed on behalf of a class of persons and entities who purchased or otherwise acquired the debt securities, series of preferred stock, and certain series of depository shares representing interest in preferred stock (collectively, the "Bond Class Securities") in or traceable to Citigroup, Inc.'s public offerings between May 2006 and August 2008 (the "Offerings Period").
On December 1, 2008, the Honorable Sidney H. Stein appointed BLB&G clients Minneapolis Firefighters' Relief Association, Louisiana Municipal Police Employees' Retirement System, and Louisiana Sheriffs' Pension and Relief Fund as Bond Plaintiffs, and BLB&G as Bond Counsel for the Class.
On January 15, 2009, Bond Plaintiffs filed their Consolidated Amended Class Action Complaint. Bond Plaintiffs allege that throughout the Offerings Period, Citigroup, Inc. ("Citigroup" or the "Company") raised over $71 billion from investors in a series of public offerings while misrepresenting its exposure to several hundred billion dollars of toxic assets linked to residential mortgage-backed securities. For example, until November 2007, Citigroup failed to disclose its exposure to more than $66 billion of collateralized debt obligations ("CDOs") backed by residential mortgages that were defaulting at record rates. Citigroup also materially understated its loss reserves for its $213 billion portfolio of high-risk residential mortgage loans, and falsely stated that as much as $100 billion of risky assets held in off-balance sheet entities known as structured investment vehicles ("SIVs") were of high credit quality.
Even after Citigroup began to admit some of its exposure to these toxic securities, it continued to misrepresent their value and their impact on its solvency. In fact, throughout 2008, Citigroup and its executives maintained that the Company was "well capitalized" and that its available capital was "sufficient to absorb unexpected market, credit, or operational losses." In reality, however, the exposures described above were so impaired that Citigroup was teetering on the brink of insolvency.
Investors began to realize the truth about Citigroup's financial condition on November 17, 2008, when the Company held a "Town Hall" meeting at which it announced that it would no longer mark-to-market $80 billion of its risky, mortgage-related assets. Two days later, Citigroup announced that it would dismantle its SIVs and purchase $17.4 billion of their assets in order to pay off investors in the SIVs, further indicating that those assets were so badly impaired that they could no longer generate enough income to pay the investors in the normal course. By taking these steps, Citigroup essentially admitted that these exposures were either worthless, or worth so much less than reported, that the Company could not withstand the losses it would have to take if it reported their fair value. Indeed, on November 20, an analyst wrote that it "received numerous calls today asking if Citigroup is about to fail."
In response to these disclosures, the price of the Bond Class Securities collapsed, falling as much as 56% between November 17 and November 21, as investors realized that the Company's mortgage-linked exposures were worth dramatically less than Citigroup had reported, and that the Company was perilously close to insolvency. Faced with these developments, the U.S. Government was forced to take unprecedented action to prevent the liquidation of Citigroup and the resulting destabilization of the global financial markets. Thus, on November 23, 2008, the U.S. Government announced that it was forced to guarantee $306 billion of Citigroup's impaired assets, including those described above, and infuse the Company with $20 billion in cash to stabilize its eroded capital base.
In the Spring of 2009, Defendants moved to dismiss the Complaint. On July 12, 2010, the Court issued an order sustaining Bond Plaintiffs' claims in all material respects and emphatically rejecting the overhwleming majority of Defendants' arguments. Specifically, the Court held that Bond Plaintiffs had standing to assert claims in connection with all $71 billion worth of Offerings. Moreover, the Court held that Bond Plaintiffs had adequately alleged that Citigroup made material misstatements and omissions about its exposure to the subprime-related assets noted above, their value, and their impact on its financial condition.
On March 22, 2011 Bond Plaintiffs moved for certification of the class. After a May 13, 2011 opposition from Defendants, the motion was fully submitted with Bond Plaintiffs' reply on June 10, 2011. On May 13, 2011 Bond Plaintiffs filed a motion to compel production of documents that are being withheld by Defendants based on an assertion of the "Bank Examination" privilege. On July 29, 2011 Judge Stein permitted the intervention of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation in order to allow those governmental entities to submit legal briefs on the issue. As of August 26, 2011 the motion to compel was fully submitted to the court. Discovery continues as the case has entered the fact deposition stage of litigation.
