US District Judge Sidney Stein on Monday denied a request by Citigroup (C) to dismiss a class-action suit by a group of pension funds and an insurance company that purchased bonds issued between May 2006 and August 2008. The case involves 48 bond offerings from which Citigroup was said to have raised more than $71bn while allegedly “failing to truthfully and fully disclose critical information about its financial condition to investors, notably information pertaining to its ‘toxic mortgage-linked exposures.'” In particular, the plaintiffs allege that Citigroup did not disclose details of its exposure to $66bn worth of collateralized debt obligations (CDOs) and $100bn of structured investment vehicles (SIVs) backed by subprime mortgages. The once popular SIVs are long-term asset products funded via short-term paper. Citi absorbed its SIVs in December 2007. Plaintiffs contend that Citigroup made materially untrue or misleading statements or omissions in public offering materials associated with 48 bond issuances between May 2006 and August 2008. They also claim Citigroup underestimated reserves necessary to cover losses on the underlying subprime mortgages. Citigroup requested the court to dismiss the class action complaint, stating that the “plaintiffs lack standing to pursue many of their claims.” Additionally, Citigroup contended that the remaining claims “sound in fraud” and should be subject to stricter requirements, and that even if those stricter requirements do not apply, the plaintiffs failed to identify “an actionable misstatement or omission” and therefore does not present a plausible claim. Judge Stein, in an opinion Monday, denied Citigroup’s motion to dismiss the bondholder claims with respect to the CDO holdings and the credit quality of its SIV holdings once those holdings were consolidated in December 2007. In a statement e-mailed to HousingWire, Citigroup said it would “vigorously defend the remaining claims” by the plaintiffs. The judge’s opinion dismissed several claims against Citigroup, regarding its exposure to $11bn of auction-rate securities (ARS) and its exposure to its SIV holdings before consolidation in December 2007. Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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