2LT International News

NEW YORK CITY, New York: Citigroup must defend itself against a revived lawsuit accusing the bank of facilitating and concealing a massive fraud scheme at the now-bankrupt Mexican oil services company Oceanografia, a U.S. appeals court has ruled.

A three-judge panel of the 11th U.S. Circuit Court of Appeals in Miami ruled that 30 Oceanografia vendors, creditors, and bondholders had sufficiently alleged that Citigroup played a substantial role in the alleged fraud, overturning a lower court decision that had dismissed the nine-year-old case.

According to the plaintiffs, Citigroup’s Banamex unit advanced US$3.3 billion to Oceanografia between 2008 and 2014 despite allegedly being aware that the company was over-leveraged and having forged Pemex authorization forms. Citigroup later uncovered $430 million in fraudulent advances and was fined $4.75 million by the U.S. Securities and Exchange Commission in 2018 for Banamex’s internal control failures.

Former Citigroup CEO Michael Corbat said the bank terminated 12 employees in response to the scandal, while Mexican regulators held 10 Banamex employees criminally liable.

In the 82-page ruling, Circuit Judge Britt Grant found sufficient grounds for the plaintiffs to proceed, stating, “Citigroup is one of the world’s most sophisticated financial institutions, and it strains credulity to conclude that, assuming the plaintiffs’ allegations are true, Citigroup lacked awareness of (Oceanografia’s) activities.”

The case now returns to U.S. District Judge Darrin Gayles in Miami, who dismissed it in August 2023.

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment, while plaintiffs’ lawyer Juan Morillo said his clients were “gratified” by the decision.

The case is Otto Candies LLC et al. v. Citigroup Inc., 11th U.S. Circuit Court of Appeals, No. 23-13152.