Citigroup must face South Korean bank's lawsuit over failed CDO

Wed Apr 22, 2015 11:45am EDT
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By Jonathan Stempel

NEW YORK (Reuters) - A U.S. appeals court on Wednesday revived a lawsuit in which South Korea's Woori Bank accused Citigroup Inc of defrauding it into buying risky mortgage securities that Citigroup was betting against, prior to the financial crisis.

The 2nd U.S. Circuit Court of Appeals in New York said a lower court judge erred in finding that Woori waited too long to sue over its $25 million investment in 2007 in Armitage ABS CDO Ltd, a collateralized debt obligation that Citigroup sold.

Citigroup declined to comment.

Woori was the South Korean financial sector's biggest victim of the U.S. subprime mortgage crisis, and wrote off much of a $1.5 billion stake in CDOs and credit default swaps. It later sued a few banks in the United States to recoup some losses.

According to court papers, Woori invested in Armitage in March 2007, only to see the CDO default that December. Woori said it shed its "worthless" stake in Armitage in August 2008.

But the Seoul-based bank did not sue until May 15, 2012, which Citigroup argued was too late under a three-year statute of limitations prescribed under South Korean law.

Woori countered that it had lacked "practical and specific awareness" of its claims, which under South Korean law would start the clock, until 2011.

In that year, the U.S. Financial Crisis Inquiry Commission issued its report on the 2008 crisis, and Citigroup settled U.S. Securities and Exchange Commission charges including that it had shorted a CDO that was a component of the Armitage CDO.   Continued...

A Citibank ATM is seen in Los Angeles, California, March 10, 2015.  REUTERS/Lucy Nicholson