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Citigroup faces $1 billion lawsuit for alleged fraud by Mexican oil companies

A U.S. court of appeals ruled Thursday that Citigroup will have to face a lawsuit alleging it caused over $1 billion in losses by orchestrating a fraud at the Mexican oil and gas service company Oceanografia.

Three judges of the 11th U.S. Circuit Court of Appeals in Miami said that 30 Oceanografia vendors, creditors and bondholders adequately alleged that Citigroup substantially aided the fraud. A lower court judge erred by dismissing this nine-year-old case. Circuit Court of Appeals, Miami, said that 30 Oceanografia vendors and creditors, as well as bondholders, adequately alleged Citigroup's involvement in the fraud. A lower court judge erred by dismissing the case nine years ago.

Danielle Romero Apsilos, Citigroup's spokeswoman declined to comment. Juan Morillo said that his clients were pleased with the ruling.

Citigroup's Banamex division had advanced cash to Oceanografia which provided drilling services for Mexico's state owned oil company Petroleos Mexicanos, and collected interest on the advances.

The plaintiffs include shipping and leasing companies as well as investment funds, and Rabobank in the Netherlands. They claim that Citigroup advanced $3.3billion to Oceanografia from 2008-2014 despite knowing it had too much debt, and was forging Pemex's signatures on authorization documents.

Citigroup was fined by the U.S. Securities and Exchange Commission for Banamex's lack of internal controls in 2018.

Former Citigroup CEO Michael Corbat claimed that the bank terminated 12 employees. Mexican regulators confirmed that 10 employees of the bank were held criminally responsible under Mexican law.

Circuit Judge Britt grant found in an 82 page decision that there were sufficient allegations to prove that Citigroup had withheld important information about Oceanografia, and the interest payments provided a financial incentive.

She added, "Citigroup, as one of the most sophisticated financial institutions in the world, is a difficult conclusion to draw if the plaintiffs' claims are true. Citigroup was unaware of Oceanografia's activities."

The case was returned to U.S. district judge Darrin Gayles of Miami who dismissed it on August 20, 2023.

Otto Candies LLC et al v Citigroup Inc., 11th U.S. Circuit Court of Appeals. Circuit Court of Appeals No. 23-13152. Reporting by Jonathan Stempel, New York; Editing and production by Richard Chang

(source: Reuters)