Two US pension funds have sued 23 current and former members of Citigroup’s board, accusing them of abdicating their oversight duties and hence permitting the bank “to commit fraud, squander customers’ trust and violate binding law.”
The complaint was filed with a Delaware court by attorneys for the Oklahoma Firefighters Retirement System and the Key West (Florida) Municipal Firefighters and Police Officers’ Retirement Trust Fund. Among the defendants named are 16 Citigroup board directors, including Chairman Michael O’Neill and Chief Executive Michael Corbat.
In the complaint, a copy of which was seen by Responsible Investor, the plaintiffs argue that even after the US government bailout of Citigroup at the height of the financial crisis, the board remained grossly negligent. “Despite the bailout in 2008, Citigroup’s oversight and internal control failures continued unabated, resulting in pervasive misconduct throughout the bank, its subsidiaries and divisions,” the lawsuit states.
Citing examples of such misconduct, the plaintiffs point to money laundering, a fraud resulting from a large accounts receivable lending program, the rigging of foreign exchange rates and “deceptive marketing practices” in Citigroup’s credit card business.
“Citigroup’s board has repeatedly used stockholder funds to finance the penalties arising from such control failures. It has also represented to federal regulators that it will adopt effective risk and legal compliance controls,” the lawsuit states, adding, however, that the board has failed to deliver.The lawsuit concludes with a “Prayer for Relief” – which outlines what the plaintiffs are demanding. Should the court rule in favour of the lawsuit, Citigroup should claim from the defendants “any and all damages sustained as a result of their breaches of fiduciary duty,” the lawsuit states. Citigroup should also be directed by the court to improve its governance and ensure compliance with the law.
“Citigroup’s oversight and internal control failures continued unabated”
The plaintiffs themselves are asking the defendants to cover all the costs of the complaint, including attorney and court fees, as well as “further relief as the Court deems just and proper.” The pension funds are being represented by the law firms of Bernstein Litowitz Berger & Grossmann (BLBG) and Grant & Eisenhofer.
A spokesman for Citigroup dismissed the lawsuit, saying that the claims were completely without merit.
In related news, US proxy firms ISS and Glass Lewis are recommending that Citigroup shareholders vote against the bank’s executive pay plans at a shareholder meeting later this month. The rejection comes despite Citigroup’s move to cap bonuses for its top executives. CEO Corbat would earn $16.5m for 2015 under the new scheme. But ISS was quoted by the Financial Times as saying: “The remuneration structure has generated considerable wealth for the CEO but not for shareholders.”