By Martha Graybow
NEW YORK (Reuters) - An investor lawsuit contends that Citigroup
Inc insiders, including senior counselor and former U.S. Treasury
Secretary Robert Rubin, sold more than $150 million of their own
shares at inflated prices while concealing the bank's true
financial health.
The allegations were made in a nearly 500-page court complaint
filed by shareholders who are suing the bank for fraud related to
its disclosures over mortgage-linked securities. The complaint was
filed late Monday in U.S. District Court in Manhattan.
Citigroup spokesman Mike Hanretta said on Wednesday the lawsuit
is without merit, and the bank "will defend against it
vigorously."
The No. 2 U.S. bank is trying to shore up investor confidence as
it disposes of assets and sheds 52,000 jobs after securing a
government rescue aimed at limiting potential losses on $306
billion in troubled assets.
Shares have tumbled to less than $8 a share, down from more than
$55 apiece at the end of 2006.
In their lawsuit, the shareholders did not bring a claim of
improper insider trading against the defendants under federal
securities laws.
Instead, they contend the company and certain executives
concealed the risks of billions of dollars worth of financial
instruments and deceived investors by artificially boosting the
company's stock until "the truth emerged" and the share price
fell.
The shareholders contend that Rubin, former Chief Executive
Charles Prince and other current and former executives engaged in
"suspicious" stock sales that were "made at times calculated to
maximize the personal benefits from undisclosed inside
information."
Together, the insiders sold nearly 3 million shares of Citigroup
stock at artificially inflated prices for combined proceeds of
about $150 million in the period from January 1, 2004, through
February 22, 2008, the lawsuit contends. The complaint says the
sales "were unusual in timing and/or amount."
Rubin registered proceeds of $30.6 million, while Prince got
$26.5 million, former Chief Operating Officer Robert Druskin got
nearly $32 million and former Global Wealth Management unit chief
Todd Thomson got $25.7 million, according to the lawsuit.
The four were not immediately available for comment.
CEO Vikram Pandit is not named as a defendant. Pandit replaced
Prince last December.
The lawsuit seeks class-action status on behalf of other
stockholders. The defendants are due to file their response early
next year.
The lead plaintiff is a group of ex-employees and directors at
Automated Trading Desk, an electronic trading firm sold to
Citigroup for $680 million in 2007.
The group, represented by law firm Kirby McInerney LLP, contends
that Citigroup shares they received as part of the buyout -- valued
at $52 each at the time -- were artificially inflated because of
misstatements and deception by the defendants.
"Defendants knew full well that Citigroup was exposed to
increasingly risky assets and decreasingly valuable assets,
primarily in the form of mortgage-related instruments, and
dissembled, concealed and schemed to avoid having those facts fall
into public hands," according to the complaint.
The stock rose 20 cents to $7.42 Wednesday on the New York Stock
Exchange.
(Reporting by Martha Graybow; editing by Jeffrey Benkoe)