A U.S. appeals court revived a case in which Woori Bank of South Korea accused Citigroup Inc (NYSE:C) of defrauding it into purchasing risky mortgage securities that the bank was betting against, before financial crisis.
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It appears that the bank have to face lawsuit over failed CDO. Also, the second U.S. Circuit Court of Appeals stated that a lower court judge made a mistake in finding that Woori Bank waited too long to take legal action related to its $25 million investment done back in 2007 in Armitage ABS CDO Ltd. It is a collateralized debt obligation that the U.S. bank sold.
Woori Bank was the biggest victim in the South Korean financial sector after the subprime mortgage crisis. The bank wrote off a huge $1.5 billion stake in credit default swaps and CDOs. It later filed suits against few banks in the U.S. to recoup some losses.
As per the court papers, the South Korean bank invested in Armitage ABS in March 2007, only to record the CDO default in December. It disclosed that it offloaded its “worthless” stake in Armitage ABS in August 2008. However, the bank didn’t sue Citigroup until May 15, 2012.
Citigroup argued that the complaint of the South Korean Bank was too late as per a three-year act of limitations stated under South Korean law. Woori said that it lacked the specific and practical awareness of its claims. In the year, Citigroup settled U.S. SEC charges including shorting of a CDO which was a part of the Armitage CDO.
The second circuit stated that apart from the cases, there was nothing specific about the U.S> bank to allow Woori properly plead fraud. Based on these and other related documents that Citigroup has given about Armitage ABS Woori has probably alleged charges that are not time barred.