Citigroup Faces $1 Billion Lawsuit in Oceanografía Scandal

Citigroup is in hot water due to a new lawsuit challenging its conduct after allegedly causing losses exceeding $1 billion due to its involvement and cover-up of a fraud at the Mexican oil and gas service company Oceanografía, which is currently bankrupt. This was ruled by a court on Thursday. A panel of three judges from the 11th Circuit Court of Appeals in Miami ruled in favor of 30 sellers, creditors, and bondholders of Oceanografía, who argued that Citigroup played a crucial role in the fraud, noting that a lower court judge had made a mistake in dismissing this case that has been ongoing for nine years.

Danielle Romero-Apsilos, a spokesperson for Citigroup, did not provide any comments on the matter. Juan Morillo, the attorney for the plaintiffs, stated that his clients are pleased with the ruling. Banamex, a subsidiary of Citigroup, had provided advance cash amounts to Oceanografía, which was undertaking drilling operations for the state-owned company Pemex, charging interest in return. The plaintiffs, including shipping companies, investment funds, and Rabobank from the Netherlands, contend that Citigroup advanced $3.3 billion to Oceanografía between 2008 and 2014, despite being aware of the company's overwhelming debt and that it had forged Pemex signatures on authorization documents. Eventually, Citigroup uncovered around $430 million in illicit advances and was fined $4.75 million by the U.S. Securities and Exchange Commission in 2018, related to Banamex's internal controls. Michael Corbat, former CEO of Citigroup, stated that the bank dismissed 12 employees, while Mexican regulators indicated that 10 bank employees faced criminal liability under Mexican law. In an 82-page ruling, Circuit Judge Britt Grant found that the allegations were sufficient to demonstrate that Citigroup had concealed crucial information from the plaintiffs about Oceanografía and that the interest payments served as financial incentives. "Citigroup is one of the most advanced institutions in the financial world, and it is hard to believe that, if the plaintiffs' allegations are true, they weren't aware of Oceanografía's activities," he added. The court has returned the case to District Judge Darrin Gayles of Miami, who had dismissed it in August 2023.

This case highlights the complexity and opacity that can exist in financial markets, especially when dealing with large sums of money. The situation of Citigroup serves as a reminder of the importance of implementing solid internal controls and maintaining adequate transparency to prevent negative impacts on both investors and the reputation of financial institutions. The consequences of failing to do so can be devastating.