As per a report in
legal hassles continue to bother
), as a New York appeals court recently upheld an ongoing lawsuit
against the banking behemoth. The case is associated with the sale
of faulty mortgage backed securities.
The ruling favored Loreley Financing, a group comprising nine
investment firms that had filed the lawsuit way back in Jan 2012.
Though these investment firms can proceed with the charge of fraud
on Citigroup, they cannot sue the company for undue profit from the
sale of collateralized debt obligations (CDOs).
Loreley Financing alleged that Citigroup had sold risky CDOs worth
nearly $1 billion which resulted in huge losses for these
investment firms. Moreover, Citigroup had the knowledge that these
securities were designed to fail. Hence, to secure itself against
any potential future losses the bank had purchased credit default
swaps against the CDOs.
Despite the odds against it, Citigroup had placed its request to
dismiss the case as Loreley Financing was unable to prove that
their decision to buy the securities was based on the bank's
documents. The appeals court, however, overruled the plea and added
that the disclaimer in the bank's document did not specify the
risks associated with the CDOs.
A similar ruling had recently favored Basis Capital Funds
Management Ltd., an Australian hedge fund. The case was connected
to the sale of the
The Goldman Sachs Group, Inc.
) CDOs also known as Timberwolf and Point Pleasant.
Financial companies including Citigroup, Goldman,
JPMorgan Chase & Co.
) continue to pay for their malpractices in the pre-crisis period.
Though this weigh against their profitability, it also keeps them
cautioned against any further wrong doings in future. This paves
the way for a relatively secured investment environment in the
Citigroup currently carries a Zacks Rank #3 (Hold).
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