Citigroup Wins Dismissal Of Sheldon Solow Lawsuit Accusing Bank Of Fraud During Crisis

In this photo, Vikram Pandit, CEO of Citigroup, speaks during the FORTUNE Breakfast & Conversation with Vikram Pandit at TIME Building on October 12, 2011 in New York City. Citigroup has won the dismissal of a lawsuit accusing them of securities fraud.

* Investor said Citigroup hid risk during 2008 financial crisis

* Judge: Lack of confidence caused liquidity problems for bank

By Jonathan Stempel

May 18 (Reuters) - Citigroup Inc and its Chief Executive Vikram Pandit on Friday won a dismissal of New York real estate developer Sheldon Solow's lawsuit accusing them of securities fraud for hiding the bank's risks during the 2008 financial crisis.

U.S. District Judge Robert Sweet in Manhattan said Solow failed to show that the defendants had materially misled him about Citigroup's liquidity and capitalization, or that his stock losses were caused when the bank's risks were realized.

Sweet had in November dismissed an earlier version of Solow's complaint, but gave the plaintiff a chance to replead. Friday's dismissal is "with prejudice", meaning that Solow cannot bring the case again.

Ira Lee Sorkin, a partner at Lowenstein Sandler representing Solow, did not immediately respond to a request for comment, including over whether his client plans an appeal. Citigroup did not immediately respond to a similar request.

The lawsuit is separate from nationwide litigation by Citigroup stock and bond investors over the bank's disclosures about its exposure to toxic mortgage debt. That litigation is overseen by Sweet's colleague, U.S. District Judge Sidney Stein.

Solow claimed the New York-based bank was responsible for his losing 87 percent of a $510,000 investment in 40,000 Citigroup shares that he bought in September and November 2008. He sold the shares in March 2009.

The developer contended that Citigroup overstated its financial health in late 2008 and early 2009, even trying to buy parts of Wachovia Corp before that struggling lender agreed to a takeover by Wells Fargo & Co.

He also said Citigroup even touted its strong capital levels and liquidity while quietly scrambling to obtain a federal bailout that included $20 billion of new capital.

Sweet, however, said Solow failed to link Citigroup's alleged concealments to the decline in its stock price, which fell briefly below $1.

"Citigroup's liquidity crisis can be attributed to a lack of confidence in the firm rather than the materialization of a risk defendants concealed," he wrote.

The case is Solow v. Citigroup Inc et al, U.S. District Court, Southern District of New York, No. 10-02927.

Comments

[frank adam]

02:02 PM on 05/21/2012

Forget the elections, like the queen of England, just a formality. Vote for your favorite banker.

[l78lancer]

12:20 AM on 05/21/2012

So at what point are banks responsible and accountable when they make high-risk decisions and blow it causing their shares to tank, particularly when they do not reveal those decisions and their risks to shareholders?

[SteamKing]

08:46 PM on 05/20/2012

I believe in less regulation of business overall especially small business. However lets face it most of these CEO's are great at giving their Dale Carnegie type of speeches to the public and at analysts meetings but they have no idea what their trading desks are doing. My wife taught some of these fools at Columbia Executive Business and she was alarmed at what little most of them reallyk k new about accounting and derrivatives. They are masters at communicating to reporters and at shareholder meetings but when you get down to the meat and potatos of running these complex financial companies many such as Jammie Diamond at Chase and The Miss Diversity Indian Lady that runs Pepsi are found to be vastly over rated as far as delivering the bottem line for shareholders.

[SueZbell]

05:54 PM on 05/20/2012

They escaped legal liability; that's not the same as escaping allegations or suspicions and the effect, albeit short term, on PR. It is fortunate for them that most people not directly affected were not paying attention and most that were will have short memories.

[altohone]

12:51 PM on 05/20/2012

Blaming gravity for the collapse of a building made using shoddy material makes as much sense.

[kamact]

10:43 AM on 05/20/2012

Systemic corruption is self-defending...

[dtallwalk]

08:18 AM on 05/20/2012

Judge: Lack of confidence caused liquidity problems for bank
Yea Chase ran out of there money and used all of your money and lost that to
Like a guy in Vegas who can't or don't know when it's time to walk away from the table.
And the banks are all ready pent-up and need to get back to the table. And not much has changed other then if the banks gamble with deposits this time the banks and the republicans
Will be seen as they are liers

[castlemike]

01:08 AM on 05/20/2012

Travesty. Wonder if it was a friendly judge?

[SueZbell]

05:56 PM on 05/20/2012

... a judge with a well-financed re-election campaign?

or newly acquired, perhaps hidden wealth?

or with a relative or mistress w/a new, high-paying job?

---you mean THAT kind of "friend"?

Wouldn't doubt it.

[DBG Enterprises]

01:04 AM on 05/20/2012

"Citigroup's liquidity crisis can be attributed to a lack of confidence in the firm rather than the materialization of a risk defendants concealed," he wrote.

WTF...by this logic any bank can do anything, then attribute its lose to a lack of confidence and the shareholders have to take it?????

[SOproud]

12:01 AM on 05/20/2012

Sadly, David had no chance against Goliath. Can you imagine the ramifications for Citigroup if the decision had gone the other way? I can guarantee there would be a decline in stock price because everybody would jump on the bandwagon for a class action lawsuit.

I say APPEAL and get a disgruntled Lehman Brothers attorney.

[PilgrimMom]

11:17 PM on 05/19/2012

"A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.” — Mark Twain

[pcs5141]

10:22 PM on 05/19/2012

Phew,that was a near miss.

[rudy in la]

05:50 PM on 05/19/2012

What ever happened to de`facto evidence? Obviously they didn't disclose the risks properly because they actually failed to survive the market! The Fed saved them at the expense of all taxpayers. They're still a mess. Who knows what they still haven't disclosed, or giving them the benefit of doubt here, don't know yet. I suppose the management of Lehman was just a victim of circumstance as they shuffled money around from unit to unit and country to country to hide the ridiculous and criminal leveraging they were using. This is disgusting. What exactly is the DOJ looking at that's a bigger issue than this? This is a major fail on the part of the government and all of th regulators. Paulson is a jerk as well, no matter how he wants to portray his actions before and during the collapse. Now Geitner agrees with more regulation? Great. A little late Tim!

[tradjety]

05:24 PM on 05/19/2012

while i was getting my thoughts gathered I noticed what I had to say was said by the previous posters ... good stuff.

big money avoids big trouble ... i mean the corrupt way = paid

[Manhattanite]

04:14 PM on 05/19/2012

Oh! really?