Citigroup faces fraud suit claiming US$1.1b in losses

[NEWARK] Citigroup Inc was sued for fraud by a Mexican oil services firm's investors and creditors over claims they were harmed by a loan scheme that led the bank to cut 2013 profit by US$235 million and fire at least a dozen people.

The bank's actions caused investors including Rabobank Groep as well as creditors of the Mexican firm, Oceanografia SA, to lose at least US$1.1 billion, according to a complaint Friday in Miami federal court.

Rabobank and other investors also filed a separate negligence suit in state court in Delaware against auditor KPMG LLP. Citigroup said in Feb 2014 that its Mexican subsidiary, Banamax, made bogus loans to Oceanografia secured by promises that state-run Petroleos Mexicanos, or Pemex, would repay the bank for work the oil-services firm performed.

The Oceanografia investors claim Citigroup conspired with the company to accept falsified work estimates even as the oil services firm became increasingly dependent on the bank's cash advances.

"Intentional misconduct on the part of Wall Street banks - including Citigroup specifically - is far from unfamiliar," according to the complaint.

"Yet again, greed and dishonesty have victimized blameless businesses and investors."

Mark Costiglio, a Citigroup spokesman, and Manuel Goncalves, a spokesman at KPMG, both declined to comment. The law firm Quinn Emanuel Urguhart & Sullivan LLP provided copies of the complaints, which couldn't be independently confirmed with the courts.

SEC Probe

Citigroup has said in regulatory filings that it's cooperating with an investigation by the US Securities and Exchange Commission and a Justice Department request for information about the fraud that the bank discovered in 2014 involving Oceanografia. Mexican authorities seized Oceanografia in Feb 2014, later opening a criminal investigation and granting it protection from creditors.

The complaint includes claims that the bank violated the Racketeer Influenced and Corrupt Organization Act and engaged in fraud while breaching its fiduciary duty. It seeks compensatory and punitive damages.

Oceanografia's cash advance requests were subject to a two-step approval process by Citigroup to verify that documents submitted by the oil services firm accurately reflected the terms of its contracts with Pemex, according to the complaint. With respect to at least 166 cash requests, Citigroup didn't satisfy either step, according to the complaint.

In Feb 2014, Citigroup contacted Pemex to discuss the cash advances and learned that Oceanografia had submitted fraudulent supporting documentation, according to the complaint.

With Pemex aware of the phony paperwork, "Citigroup had no choice but to distance itself from and shift blame to Oceanografia including by becoming a whistle-blower and playing the victim," according to the lawsuit.

"However, Citigroup's efforts to avoid responsibility are transparent."

BLOOMBERG