Judge: Debt lawsuit against Citigroup can proceed

A federal judge is allowing a portion of a proposed class-action securities fraud lawsuit against Citigroup Inc., several executives and a board member to go forward.

In a ruling filed Tuesday, Judge Sidney H. Stein said enough of a claim has been established to proceed with the case filed Feb. 29, 2009, in the U.S. District Court for the Southern District of New York, in Manhattan.

The case, filed on behalf of Citigroup shareholders, alleges executives including former chief executive Charles Prince and former chief financial officer Gary Crittenden misled investors through misstatements and omissions about the exposure to potential losses in the company's collateralized debt obligations, or CDOs, from February 2007 through Nov. 3, 2007.

The ruling finds the case also can proceed against five other executives including Robert Druskin, chief operating officer; Thomas Maheras and Michael Klein, who were responsible for collateralized debt obligations; David Bushnell, former senior risk officer, and Robert Rubin, a board member who was named chairman after Prince left the company.

Citigroup and the executives claim the plaintiffs have failed to prove they acted with intent or knowledge of wrongdoing.

Manhattan-based Citigroup was a major subprime mortgage lender and one of the banks hardest-hit by the credit crisis and the recession. It received $45 billion in federal bailout money - one of the biggest rescues in the government's program.

As borrowers defaulted, Citigroup's losses reached nearly $30 billion on some portions of CDOs. CDOs are complex financial instruments that combine various slices of debt.

The banking company said it was "pleased the court has dismissed the great majority of plaintiffs' claims and substantially reduced the class period at stake."

"As to the remaining issue concerning CDO disclosure," it added, "we have strong defenses, including the absence of any intentional or reckless misconduct, and we will continue to defend the balance of this case vigorously." - AP