A consolidated lawsuit by bondholders can proceed against Citigroup Inc. over alleged misstatements about the bank's exposure to complex financial instruments tied to subprime mortgages, a judge has ruled.
The bondholders claim Citigroup failed to disclose its exposure to $66 billion worth of collateralized debt obligations backed by subprime mortgages, as well as other "toxic" mortgage-backed assets. The bondholders purchased Citigroup bonds in a series of offerings between May 2006 and August 2008, in which the bank raised more than $71 billion.
The bank's bonds plummeted in value when the bank's true exposure was disclosed in November 2008, the bondholders claim.
In a ruling Monday, U.S. District Judge Sidney Stein in Manhattan found the bondholders had standing to bring some of their claims regarding the bank's CDO exposure, saying in part that 48 bond offerings by the bank during that period used the same three registration statements.
"That is sufficient, at this stage, to establish plaintiffs' standing to raise claims on behalf of all those who purchased pursuant to those shelf registration statements and thus to challenge all forty-eight offerings," the judge ruled.
The judge dismissed some claims related to the company's statements about its exposure to $100 billion in structured investment vehicles backed by subprime mortgages and $11 billion in auction-rate securities, which bondholders claim were illiquid.
The lawsuit was brought by a group of public pension funds on behalf of purchasers of Citigroup bonds. The defendants include Citigroup Chief Executive Vikram Pandit, as well as dozens of underwriters of the bonds.