Investor Suit Slams Citi Board for Lack of Oversight

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By Michael Greene

April 5 — A group of investors are claiming that Citigroup Inc. officers and directors inadequately responded to “red flags” indicating multiple internal compliance problems.

The investors point to a string of regulatory actions and investigations against the company, including probes of its Mexican unit, Banco Nacional de Mexico SA, by the Justice Department and the Securities and Exchange Commission related to alleged fraudulent loans.

According to the investors' complaint, internal documents show that Citigroup's board knew about the ongoing compliance and control problems across multiple lines of business and failed to take proper action.

The redacted complaint was filed April 4 in the Delaware Chancery Court. The complaint stems from a contentious books and records action in which the chancery court ordered Citigroup to turn over documents to a pension fund—the Oklahoma Firefighters Pension & Retirement System—seeking to investigate whether the directors failed to fulfill their oversight responsibilities .

The investors asserted that the documents show that directors were told “in a steady drumbeat of repeated warnings from management and regulators” about the company's compliance and internal control problems.

“Despite repeated reports of serious issues, the Board failed to take meaningful, affirmative steps to ensure that control failures be remedied,” the filing stated. “To the contrary, no matter how much detail the Board was provided, its members sat like stones growing moss.”

Citigroup spokesman Kamran Mumtaz told Bloomberg BNA in an e-mail April 5 that “the claims are without merit.”

Not ‘Too Big to Govern'

The investors alleged that directors “consciously” breached their fiduciary duties by failing to implement a company-wide compliance system to stop and prevent illegal conduct that occurred following the company's “near death experience” that resulted in the government making a corporate bailout.

Specifically, the investors asserted that directors breached their oversight duties in connection with the company's

  • repeated violations of anti-money laundering laws and regulations;
  • recurring instances of fraudulent activity at Banco Nacional de Mexico SA;
  • anti-competitive behavior resulting in violations of antitrust laws; and
  • deceptive credit card practices resulting in violations of consumer protection laws.
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    “Although Citigroup was saved in 2009 because it was “‘too big to fail,' its Board has now concluded that Citigroup is simply ‘too big to govern,'” the complaint said. “Judicial relief is needed now to hold Defendants liable for breaches of their fiduciary duty of oversight and to stem the tide of dysfunction.”

    To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

    To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com