Background on Citigroup and Oceanography
Citigroup, one of the world’s most sophisticated financial institutions, is facing a lawsuit alleging that it orchestrated and concealed a fraud involving Mexican oil and gas services company Oceanography, which is now in bankruptcy. A U.S. Court of Appeals panel in Miami ruled that 30 suppliers, creditors, and bondholders of Oceanography have appropriately claimed that Citigroup significantly assisted in the fraud, and a lower court erred in dismissing their nine-year-old case.
Key Players and Their Roles
Citigroup: Citigroup, through its Banamex unit, provided cash advances to Oceanography, which offered drilling services to the state-owned Pemex. Banamex charged interest on these advances.
Oceanography: A Mexican oil and gas services company accused of having excessive debt and falsifying Pemex signatures on authorization forms.
Demandants: Including shipping and financial leasing companies, investment funds, and Rabobank from the Netherlands, who claim Citi advanced $3.3 billion to Oceanography between 2008 and 2014, despite knowing about the company’s high debt levels.
Allegations and Findings
Demandants allege that Citigroup knowingly advanced funds to Oceanography, despite knowing the company’s excessive debt and fraudulent activities. Citigroup later discovered nearly $430 million in fraudulent cash advances and was fined $4.75 million by the U.S. Securities and Exchange Commission in 2018 for Banamex’s internal controls.
Former Citigroup CEO Michael Corbat stated that the bank dismissed 12 employees, while Mexican regulators said 10 bank workers were criminally liable under Mexican law.
Judge Britt Grant, in an 82-page decision, found the allegations sufficient to claim that Citigroup concealed crucial information about Oceanography from the demandants and that interest payments served as a financial incentive.
“Given Citigroup’s sophistication, it is challenging to believe that, assuming the allegations are true, the bank would not have been aware of Oceanography’s activities,” Grant added.
Next Steps
The case has been returned to U.S. District Judge Darrin Gayles in Miami, who dismissed it in August 2023.
Key Questions and Answers
- Q: Who are the main parties involved in this lawsuit? A: Citigroup, Banamex (Citigroup’s unit), and various suppliers, creditors, and bondholders of Oceanography.
- Q: What is the nature of the allegations against Citigroup? A: Citigroup is accused of knowingly facilitating and concealing a fraud involving excessive debt and falsified documents at Oceanography.
- Q: What actions has Citigroup taken in response to these allegations? A: Citigroup has dismissed 12 employees and was fined $4.75 million by the U.S. Securities and Exchange Commission for internal control issues at Banamex.
- Q: What is the current status of this lawsuit? A: The case has been returned to U.S. District Judge Darrin Gayles in Miami, who previously dismissed it in August 2023.
