Citigroup Inc. officials, including Chief Executive Vikram Pandit, won the dismissal of a shareholder lawsuit accusing them of turning a blind eye to the increased mortgage risks the bank was assuming in 2007.
U.S. District Judge Sidney Stein in Manhattan said the plaintiffs erred in failing to first approach bank directors, including Chairman Richard Parsons, to take action on their behalf over the alleged wrongdoing.
The shareholders accused more than two dozen current and former executives and directors of breaching their fiduciary duties by letting Citigroup invest in risky mortgage debt, misleading investors about the risks and wasting assets in the retirement package for Pandit’s predecessor Charles Prince.
David Brower, a lawyer for the shareholders, declined to comment, saying he had yet to review Tuesday’s ruling.
Citigroup spokeswoman Shannon Bell said the New York-based bank is pleased with the ruling in the so-called shareholder derivative lawsuit.
Shareholders bring such cases on behalf of companies to improve governance or take steps that management fails to pursue.
Stein dismissed the original complaint in August 2009, but gave shareholders a chance to sue again, which they did the following month. Tuesday’s dismissal is with prejudice, meaning the lawsuit cannot be filed again.
The judge oversees a variety of investor litigation against Citigroup, whose losses led to $45 billion of federal bailouts that left the government a shareholder until December.
Last July, Stein rejected the bank’s bid to dismiss a class-action lawsuit by bondholders who said they were misled about Citigroup’s exposure to toxic mortgages.
According to Tuesday’s opinion, the shareholders chose not to approach Citigroup’s 17-member board for help in September 2009 because nine directors had joined after Prince left, while the other eight “faced a substantial likelihood of liability for alleged misstatements” in registration statements.
But Stein said the shareholders did not show that even the nine new directors could not fairly address their concerns.
The amended complaint “cannot overcome a simple, irrefutable arithmetic fact: the eight directors who plaintiffs claim are not impartial do not constitute a majority of the seventeen-person board,” the judge added.
The case is In re: Citigroup Inc Shareholder Derivative Litigation, U.S. District Court, Southern District of New York, No. 07-09841.
(Reporting by Jonathan Stempel in New York; editing by Andre Grenon)
Topics Lawsuits New York Legislation
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