Citigroup Faces Revived $1 Billion Fraud Lawsuit

A revived lawsuit accuses Citigroup of orchestrating a more than $1 billion fraud at Oceanografia, a now-bankrupt oil and gas services company.

The nine-year-old complaint is back on after a three-judge panel of the 11th U.S. Circuit Court of Appeals in Miami ruled Citigroup must face the allegations, overturning a lower court’s decision to dismiss it.

The lawsuit alleges that Citigroup’s Banamex unit enabled and concealed rampant fraud at Oceanografía, which was working as a drilling contractor for the state oil firm.

The plaintiffs in the case, about 30 vendors, creditors and bondholders, allege that Citigroup provided $3.3 billion to Oceanografía between 2008 and 2014, despite being aware of an incurred massive debt and forged signatures on authorization forms to obtain inflated cash advances.

According to the ruling, Citibank’s internal investigation found it had issued nearly $430 million in fraudulent cash advances.

In 2018, the Securities and Exchange Commission fined Citigroup $4.75 million for failing to maintain a system of internal controls related to Banamex.

The lawsuit has been in the pleading stage for nine years, with the district court dismissing all seven counts in the 541-page third amended complaint for failure to state a claim. However, the appeals court saw things differently, stating that each of the plaintiffs has sufficiently pleaded the elements of each count alleged in the complaint, leading to the reversal and remand of the case.

This development marks a significant turn in the legal battle, as the plaintiffs now have the opportunity to present their case in court. The allegations against Citigroup highlight the potential for systemic failures in internal controls and the consequences of enabling fraudulent activities.

The case underscores the importance of robust internal controls and the potential legal and financial repercussions for institutions that fail to uphold these standards. As the lawsuit moves forward, it will be closely watched by industry observers and legal experts alike, with implications for corporate governance and regulatory oversight.