In re Citigroup Sec. Litig.
| Docket Number | 20 Civ. 9132 (LAP) |
| Decision Date | 24 March 2023 |
| Parties | IN RE CITIGROUP SECURITIES LITIGATION |
| Court | U.S. District Court — Southern District of New York |
Before the Court is the Rule 12(b)(6) motion to dismiss the Consolidated Amended Class Action Complaint[1] filed by Citigroup Inc. (“Citigroup”), three Citigroup officers[2] (the “Officer Defendants”) and seventeen Citigroup directors[3] (the “Director Defendants”).[4] Lead Plaintiff Public Sector Pension Investment Board (“PSP” or “Lead Plaintiff”), and Named Plaintiff Anchorage Police & Fire Retirement System (“Anchorage”) (together “Plaintiffs”)-on behalf of a putative class of purchasers of Citigroup's securities-oppose the motion.[5] For the reasons below, the motion is GRANTED, and the CAC is DISMISSED without prejudice.
The CAC alleges securities fraud claims under 15 U.S.C. § 78j(b) and Rule 10b-5 against Citigroup, the Officer Defendants, and the Director Defendants, as well as controlperson claims under section 20(a) against the Officer Defendants. (CAC ¶¶ 28-51, 575-586.)
Citigroup is a Delaware corporation that provides financial services and products to consumers, corporations, governments, and institutions around the world, with “over $2.2 trillion in total assets [and] approximately 200 million customer accounts.” (CAC ¶ 29.)
Michael Corbat was CEO and Director of Citigroup from 2012 through February 26, 2021. (Id. ¶ 31.) Corbat also served as a Director of Citibank from June 2020 through February 26, 2021. (Id.) Plaintiffs allege that Corbat's sudden departure in February 2021 resulted from enforcement orders against Citigroup for allegedly longstanding and unremediated deficiencies in internal controls and risk management systems. (Id.)
John Gerspach was CFO of Citigroup from July 2009 through February 22, 2019. (Id. ¶ 32.) In this role, Gerspach reported directly to Corbat during the Class Period and chaired or cochaired several management committees related to governance and oversight. (Id.)
Gerspach's successor is Defendant Mark Mason, who has been with Citigroup since 2001 and has served as Citigroup's CFO since February 23, 2019. (Id. ¶ 33.) As CFO, Mason chairs or co-chairs several management committees related to governance and oversight. (Id.)
Plaintiffs allege that the Officer Defendants were provided advance or contemporaneous copies of-and possessed the power and authority to approve and control the contents of-Citigroup's reports to the SEC, press releases, and presentations alleged by Plaintiffs to be false and misleading, yet failed to prevent their issuance or to cause them to be corrected. (Id. ¶ 34.)
Plaintiffs name seventeen current and former directors of Citigroup, in addition to Gerspach.
Ellen Costello has served since 2016 as a Director of Citigroup and Citibank and as a member of Citigroup's Audit Committee. (Id. ¶ 35.) Ms. Costello has served as a member of Citigroup's Risk Management Committee since 2018. (Id.)
Grace Dailey has served since 2019 as a Director of Citigroup and a member of Citigroup's Audit and Risk Management Committees. (Id. ¶ 36.) In 2020, Ms. Dailey briefly served as a Director of Citibank. (Id.) Prior to joining Citigroup, Ms. Dailey had a thirty-five-plus-year career at the OCC, culminating in her role as Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner. (Id.)
Barbara Desoer, a current Director and former CEO of Citibank, has served since 2019 as a Director of Citigroup and a member of Citigroup's Risk Management Committee. (Id. ¶ 37.) Ms. Desoer served on Citigroup's Audit Committee from 2019 to 2020. (Id.)
John Dugan has since 2017 served as a Director of Citigroup and since 2019 as Chairman of the Citigroup Board. (Id. ¶ 38.) Mr. Dugan has served on Citigroup's Audit and Risk Management Committees since joining the board in 2017. (Id.) From 2005 to 2010, Mr. Dugan served as the Comptroller of the Currency and a director of the FDIC. (Id.)
Duncan Hennes has since 2013 served as a Director of both Citigroup and Citibank. (Id. ¶ 39.) Mr. Hennes has since 2015 served a member of Citigroup's Risk Management Committee, since 2019 as Chair of Citigroup's Risk Management Committee and since 2019 as a member of Citigroup's Audit Committee. (Id.)
Peter Henry has served since 2015 as a Director of Citigroup and as a member of Citigroup's Audit Committee. (Id. ¶ 40.) Mr. Henry served as a Director of Citibank in 2015 and part of 2016. (Id.)
Franz Humer served as a Director of Citigroup from 2012 to April 2019, a member of Citigroup's Risk Management Committee from 2015 through 2018, and a Director of Citibank from 2012 to 2013. (Id. ¶ 41.)
S. Leslie Ireland has served since 2017 as a Director of Citigroup, since 2020 as a member of Citigroup's Risk Management Committee, and since 2017 as a Director of Citibank. (Id. ¶ 42.)
Lew Jacobs has served since 2018 as a Director of Citigroup and member of Citigroup's Audit Committee and since 2020 as a member of Citigroup's Risk Management Committee. (Id. ¶ 43.)
Renee James has served since 2016 as a Director of Citigroup and member of Citigroup's Risk Management Committee. (Id. ¶ 44.)
Eugene McQuade, a former director, Vice Chairman, and CEO of Citibank, served from 2015 to April 2020 as a Director of Citigroup, from 2015 through 2019 as a member of Citigroup's Risk Management Committee, and in 2019 as a member of Citigroup's Audit Committee. (Id. ¶ 45.)
Michael O'Neill served from 2009 to January 2019 as a Director of Citigroup, from 2012 to January 2019 as the Chairman of the Citigroup Board, from 2016 to 2018 as a member of Citigroup's Risk Management Committee, and in 2015 as a member of Citigroup's Audit Committee. (Id. ¶ 46.) Mr. O'Neill served as a Director of Citibank from 2009 to 2012. (Id.)
Anthony Santomero served from 2009 to April 2019 as a Director of Citigroup and from 2015 through 2018 as Chair of Citigroup's Risk Management Committee and a member of Citigroup's Audit Committee. (Id. ¶ 47.) Mr. Santomero served as a Director of Citibank from 2009 to 2019. (Id.)
James Turley has served since 2013 as a Director of Citigroup and since 2015 as Chair of Citigroup's Audit Committee and member of Citigroup's Risk Management Committee. (Id. ¶ 48.) Mr. Turkey has also served since 2013 as a Director of Citibank. (Id.)
Deborah Wright has served since 2017 as a Director of Citigroup and as a member of Citigroup's Audit Committee. (Id. ¶ 49.) Mrs. Wright has also served as a Director of Citibank since 2019. (Id.)
Alexander Wynaendts has served since 2019 as a Director of Citigroup and as a member of Citigroup's Risk Management Committee. (Id. ¶ 50.)
Ernesto Zedillo Ponce de Leon has served since 2010 as a Director of Citigroup and since 2015 as a member of Citigroup's Risk Management Committee. (Id. ¶ 51.)
The Class Period runs from January 15, 2016 to October 12, 2020. The CAC catalogues statements made in various contexts over approximately four years and asserts that these statements constitute a broad narrative of appropriate investment in and compliance with risk management requirements. Plaintiffs assert that these statements were misleading because Citigroup was aware that its regulators held a contrary view and that, instead of investing adequately in risk management, Citigroup made the deliberate choice to cut costs in hopes of improving its efficiency ratio (expenses/revenue) and thereby boosting its stock price. (Id. ¶ 238.) Plaintiffs allege that when Mr. Corbat took office in 2012, he vowed to rein in expenses and streamline Citigroup but emphasized that investments in risk management and internal controls would not be impacted. (Id. ¶¶ 92, 121-130, 402, 404, 408.) But, according to Plaintiffs, by the start of 2020 Citigroup had numerous outstanding compliance- and technology-related issues and Corbat was criticized for being “reluctant to spend the money or dedicate enough people to fix a problem the right way.” (Id. ¶¶ 158-159.)
Although Plaintiffs identify approximately sixty statements as actionable, Plaintiffs' contentions are, at bottom, that two October 2020 consent orders between Citibank and its primary regulators-the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve (“Fed”) (collectively, the “October 2020 Orders”)-render dozens of prior statements about Citigroup's risk management false or misleading. The Court sets forth the alleged misstatements and relevant events below in roughly chronological order.
On the morning of January 15, 2016, Citigroup issued a press release announcing its earnings for 4Q 2015 in which Mr. Corbat stated: [6] (CAC ¶ 310 (“Alleged Misstatement 1”).) The same day, on Citigroup's earnings conference call, Mr. Corbat remarked: “We've also made the necessary investments in our compliance, risk, and control functions which are critical to maintaining our license to do business.” (CAC ¶ 312 (“Alleged Misstatement 2”).)
On February 26, 2016, Citigroup issued its 2015 Annual Report in which it stated that:
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