Wednesday, June 1, 2016

Citi Shareholders Can Push $800M Suit Directly: Del. Court

Law360, New York (May 24, 2016, 4:07 PM ET) -- Delaware's high court ruled Tuesday that investment trusts controlled by insurance executive Arthur L. Williams and his wife Angela properly sued Citigroup Inc. directly, and did not have to proceed derivatively, on claims they lost $800 million when the bank duped them into holding shares that plunged during the financial crisis.
The Delaware Supreme Court ruling clears away one lingering question in the high-dollar 2010 lawsuit, which is on appeal after U.S. District Judge Sidney H. Stein threw it out in October 2013. On appeal the Second Circuit asked the First State for guidance on whether the so-called holder claims were direct or derivative.

"The Williamses were the holders of Citigroup stock. Citigroup itself is not a holder, and at oral argument Citigroup's counsel was unable to identify any authority in New York or Florida law that would suggest that the issuer of stock should be the plaintiff in a holder claim lawsuit," Chief Justice Leo E. Strine Jr. wrote for the court.

During oral arguments in April, Judge Strine had showed little inclination to adopt Citi's position that the case had to proceed as a derivative action, in which a plaintiff essentially stands in the shoes of the corporation to right an alleged wrong.
Jeffrey Lamken, of Molo Lamken  representing AHW investors, answering questions by Judge Strine

Wide shot of Delaware en banc hearing in the Citigroup v AHW Investors;  Jeffrey Lamken making argument to the court
The trusts sued Citigroup and several bank executives in 2010, arguing the bank falsely asserted its exposure to residential mortgage-backed securities losses was minimal. As a result, the trusts claim, Williams held on to 16.6 million shares he had received as part of a merger of his insurance business and lost $800 million as Citigroup’s stock price plummeted 95 percent.

With the Delaware ruling in hand the appeal now moves back to the Second Circuit, which could take up the question of whether the case can be revived and, if so, whether the Williamses can proceed under Florida law, which is seen as more friendly to holder plaintiffs seeking damages. Judge Stein had applied New York law in his dismissal analysis.

“We are hopeful that that Second Circuit will reverse Judge Stein and allow the case to proceed under settled Florida holder law,” said Jacob Zamansky of Zamansky LLC, attorney for the Williamses. “The record shows that Mr. Williams relied on misrepresentations by Citigroup in deciding to hold his stock.”

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