Overview
In an opinion Friday, Judge Sweet dismissed a securities fraud action brought by real estate mogul Sheldon Solow against Citigroup and its CEO Vikram Pandit. Solow alleged that Citi and Pandit falsely portrayed the company as “well-capitalized,” when it was, in fact, struggling because of its toxic mortgage-related investments. Judge Sweet first “noted that the [complaint] is devoid of allegations that Citigroup’s Tier 1 capital ratio was anything other than what Citigroup represented it to be. Banks are considered ‘well capitalized" if, among other factors, they have a Tier 1 risk-based capital ratio of 6.0 or greater. See 12 C.F.R. § 325.103. The [complaint] fails to allege that Citigroup ever fell beneath this regulatory threshold . . . .” While Solow also complained that Citi failed to disclose that it was facing a substantial risk of no longer being “well capitalized,” Judge Sweet found that “Citigroup was not obligated to characterize its performance or future outlook in negative terms, speculate on future negative results or paint themselves in the most unflattering light possible.” Judge Sweet separately found that Solow had not sufficiently pled “loss causation” – i.e., he had not alleged facts to show that a drop in Citi’s stock price was the materialization of a risk that Citi concealed. The defendants were represented by Hughes Hubbard. (H/T Reuters)
