Citigroup failed to persuade a U.S. appeals court to throw out a lawsuit that claims it lied about the riskiness of securities valued at almost $1bn, as the world’s biggest banks continue to defend against allegations they misled investors in the run-up to the financial crisis.
Bloomberg News reports that Loreley Financing was allowed by a New York appeals court to sue Citigroup for fraud. The appeals panel, partly upholding a lower-court’s decision denying the bank’s request to throw out the case, ruled today that Loreley can’t sue for unjust enrichment.
Loreley, a group of nine investment companies based in the Channel Islands, was formed to invest in collateralized-debt obligations. It sued Citigroup Global Markets in New York State Supreme Court in Manhattan in January 2012 claiming the bank secretly chose the riskiest mortgages for sale in CDOs while buying credit default swaps to bet against them. Citigroup used a similar scheme to help clients offload the risks of toxic mortgage-backed securities, Loreley said.
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