Investors who lost more than $1 billion in a fraud involving a Mexican oil services firm faced questions from a federal appeals court about just how much
Judges Jill A. Pryor, Elizabeth L. Branch, and Britt C. Grant of the US Court of Appeals for the Eleventh Circuit on Tuesday drilled down on whether the more than 30 investors who sued Citigroup in 2016 sufficiently showed they relied on statements from the bank’s employees in New York and Miami to pump money into a scheme perpetrated through the bank’s former Mexican subsidiary, Banamex.
David Cooper, a Quinn Emanuel Urquhart & Sullivan LLP attorney representing the investors, argued Citigroup’s employees should’ve known about the scheme at Banamex and that the New York-based bank should be held responsible.
“The allegations far exceed plausibility,” he said.
But the investors’ attorney faced a series of questions about how Citigroup employees in New York or Miami, among thousands of people who work for the bank, would know about a scheme in Mexico that came to light only after the investors made their decisions.
Cooper pointed to a 2014 statement from then-Citigroup CEO Michael Corbat that the bank fired an employee involved in the scheme in Mexico, although the statement didn’t specify whether the employee worked at Banamex or Citigroup.
“At the very least there is a plausible knowledge of the fraud when their CEO said they terminated an employee because of their participation in the fraud,” Cooper said. He argued that the bank, including its employees, is responsible for knowing about the fraud broadly under US securities laws.
But Adam Hakki, the A&O Shearman partner representing Citigroup, countered that Cooper and his clients hadn’t made specific enough allegations against the bank for the Eleventh Circuit to overturn a lower court decision dismissing the case.
“In all cases, they don’t allege that the person they were dealing with knew anything about the alleged fraud,” he said.
Hakki also argued that the case isn’t a class action and is instead more than 30 different complaints with each plaintiff making different factual allegations. The appellants have failed to make specific allegations with respect to each investor’s experiences with Citigroup, he said.
“This they have not done,” he said.
Second Crack
The arguments marked the second time the Eleventh Circuit has dealt with the case. The appellate panel in July 2020 overturned a January 2018 lower court ruling dismissing the case, finding that the claims against Citigroup belonged in a US court despite the investments, including through scandal-plagued former Citigroup unit Banamex, occurring in Mexico.
Citigroup processed transactions through its New York and Miami offices, making the US an appropriate venue, the appeals court said in its previous ruling.
Judge Darrin P. Gayles in the US District Court for the Southern District of Florida dismissed the case against Citigroup again in August 2023, determining the investors failed to prove Citigroup conspired with defunct Mexican oil services provider Oceanografia SA to commit fraud.
Investors in their 2016 suit claimed Citigroup employees improperly advanced funds to the now defunct Mexican oil services provider in an attempt to make it look financially healthier than the company actually was.
Citigroup settled claims related to the conduct with the Justice Department in 2017 and with the SEC in 2018 and fired around a dozen employees over the scandal. The bank also wound down Banamex and replaced it with a new Mexican subsidiary.
Homer Bonner Jacobs Ortiz PA also represents the appellants. Day Pitney LLP also representsday Citigroup.
The case is Otto Candies LLC v. Citigroup Inc., 11th Cir., No. 23-13152, Oral Arguments 9/10/24.
Source: news.bloomberglaw.com
