Citigroup must face a revived lawsuit claiming it caused more than $1 billion of losses by orchestrating and concealing a vast fraud at the now-bankrupt Mexican oil and gas services company Oceanografia, a U.S. appeals court ruled on Thursday.
A three-judge panel of the 11th U.S. Circuit Court of Appeals in Miami said 30 Oceanografia vendors, creditors and bondholders adequately alleged that Citigroup substantially aided the fraud, and a lower court judge erred in dismissing the nine-year-old case.
Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment. Juan Morillo, one of the plaintiffs’ lawyers, said his clients were gratified by the decision.
Citigroup’s Banamex unit had provided cash advances to Oceanografia, which provided drilling services to Mexico’s state-owned oil company Petroleos Mexicanos (Pemex), and collected interest payments on the advances.
The plaintiffs, including shipping and leasing companies, investment funds and Netherlands-based Rabobank, said Citigroup advanced $3.3 billion to Oceanografia between 2008 and 2014 despite knowing the company had too much debt and had been forging Pemex signatures on authorization forms.
Citigroup later found nearly $430 million of fraudulent cash advances, and was fined $4.75 million by the U.S. Securities and Exchange Commission in 2018 over Banamex’s internal controls.
Former Citigroup Chief Executive Michael Corbat said the bank fired 12 employees, and Mexican regulators said 10 bank employees were criminally liable under Mexican law.
In an 82-page decision, Circuit Judge Britt Grant found sufficient allegations that Citigroup withheld key information about Oceanografia from the plaintiffs, with the interest payments providing a financial incentive.
“Citigroup is one of the world’s most sophisticated financial institutions, and it strains credulity to conclude that, assuming the plaintiffs’ allegations are true, Citigroup lacked awareness of (Oceanografia’s) activities,” she added.
The court returned the case to U.S. District Judge Darrin Gayles in Miami, who dismissed it in August 2023.
The case is Otto Candies LLC et al v Citigroup Inc, 11th U.S. Circuit Court of Appeals, No. 23-13152.
(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)