(CN) - A federal appeals court Thursday reversed the dismissal of claims against Citigroup for its role in a massive fraud involving a Mexican marine services provider for the oil industry in the Gulf of Mexico.
In an 82-page opinion, an 11th Circuit panel found that a group of 30 international vendors, creditors and bondholders of the now-bankrupt Mexican oil and gas services company, Oceanografia, sufficiently pleaded their claims.
In 2016, they filed their complaint against Citigroup, arguing the banking and financial institution duped them into losing more than a billion dollars in investments by misrepresenting and omitting key information about Oceanografia's catastrophic financial condition.
"The case has cycled through four complaints, and it has languished at the pleading stage for nine years. The district court dismissed all seven counts in the 541-page third amended complaint for failure to state a claim. We see things differently," wrote U.S. Circuit Judge Brit Grant for the unanimous opinion.
"Because each of the plaintiffs has sufficiently pleaded the elements of each count alleged in the complaint, we reverse and remand."
Grant was joined on the 11th Circuit panel by fellow Donald Trump appointee, Elizabeth Branch, and Jill Pryor, a Barack Obama appointee.
A lower court in Florida dismissed the complaint, calling it "an impermissible shotgun pleading" that did not "meet the heightened pleading standard for fraud."
But the circuit judges concluded the investors effectively pleaded that Citigroup employees and agents themselves knew about the vast fraudulent scheme designed to boost the appearance of Oceanografia's profits and increase Citigroup's earnings from interest payments.
In 2008, the New York-based multinational investment bank, through Banamex, established a credit facility to pay Oceanografia based on services it was to provide to Mexico's state-owned oil and gas company, Petroleos Mexicanos. The more Oceanografia requested in cash advances from the facility, the more money Citigroup made through interest payments.
This, in turn, bloated Oceanografia with debt up to nearly half of its revenue and enabled Citigroup to earn millions in risk-free profits, the panel ruled.
Aside from statements from its own employees and agents, the actions of Mexican authorities further bolster the investors' claims that Citigroup knew about the fraud, wrote Grant.
The Mexican government found that Citigroup employees were criminally responsible for "extending loans they know recipients cannot repay" and ultimately seized Oceanografia and initiated restructuring proceedings, leading to its collapse.
In April 2014, Mexican banking regulators reported that 10 Citigroup employees had violated Mexican criminal law by providing cash advances to Oceanografia based on forged documents.
The oil company was behind the accounts at Banamex, which showed $400 million in loans for supposed services to Petroleos Mexicanos. After several of the receipts were found to be suspicious, Mexico launched its own investigation into Banamex and Oceanografia, while Citigroup came under investigation by the FBI and SEC. The revelations forced Citigroup to revise its 2013 earnings downward by $235 million.
Oceanografia's misrepresentations and omissions can lead to liability for Citigroup, the 11th Circuit ruled, as Florida law imposes civil liability for third-party misrepresentations in certain cases.
Because Citigroup had intimate knowledge of Oceanografia's financial condition, the court found it was responsible for its submission of false financial information to external consultants and for materials distributed to investors.
The circuit judges also determined the lower court erred by not recognizing the investors' claims of reliance on the misinformation, and found they sufficiently proved they would not have invested if they had known the truth.
They remanded the case back to the lower court to determine whether the investors have pleaded the elements of a civil racketeering violation and conspiracy claims that were previously disregarded.
When pleading claims of fraud in a complaint, a plaintiff is not expected to actually prove them at that stage, the circuit judges wrote.
To successfully plead RICO conspiracy claims, the plaintiffs need only "plausibly allege facts" showing that Citigroup and OSA worked together for several years to "fraudulently induce and lure" them into investing in Oceanografia.
"We therefore disagree with the district court's conclusion that the plaintiff's allegations are so 'vague' and 'conclusory' that they 'do not support an inference that Citigroup knowingly agreed to participate in the RICO conspiracy,'" Grant wrote in the ruling.
Source: Courthouse News Service
