Citigroup loses appeal over Abu Dhabi fund's arbitration

Wed Jan 14, 2015 10:45am EST
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By Nate Raymond

NEW YORK (Reuters) - Citigroup Inc on Wednesday lost an appeal aiming to block Abu Dhabi Investment Authority from pursuing a second arbitration over the sovereign wealth fund's $7.5 billion investment in late 2007 to shore up the then-struggling bank.

The 2nd U.S. Circuit Court of Appeals in New York ruled that Citigroup had not demonstrated a basis for an injunction based on its argument that the case was precluded after a federal court confirmed the results of an earlier arbitration it won.

U.S. Circuit Judge Peter Hall wrote that "it is the arbitrators, not the federal courts, who ordinarily should determine the claim-preclusive effect of a federal judgment that confirms an arbitration award."

Sanford Weisburst, a lawyer for the fund at Quinn, Emanuel, Urquhart & Sullivan, said the fund was pleased with the ruling. A Citigroup spokeswoman declined comment.

The case arose from Citigroup's efforts to shore up its capital base, in the wake of billions of dollars of writedowns tied to subprime mortgages. Citigroup ultimately required three federal bailouts, which it has since repaid.

In November 2007, the ADIA invested the $7.5 billion in exchange for a 4.9 percent stake in Citigroup, surpassing Saudi Prince Alwaleed bin Talal as the New York-based bank's largest individual shareholder.

Two years later, the fund began arbitration proceedings in which it accused Citigroup of fraudulently inducing its investment, in part by issuing preferred shares to other investors that diluted its stake.

An arbitration panel rejected the ADIA's claims in October 2011, and U.S. District Judge George Daniels in Manhattan confirmed that ruling in 2013. Daniels' ruling was upheld by the 2nd Circuit in February.   Continued...

A man walks past a logo of Citigroup Inc in Tokyo February 3, 2009.   REUTERS/Yuriko Nakao