Abu Dhabi fund challenges Citi victory in $4 bln arbitration

Thu Nov 8, 2012 6:23pm EST

Related News

* Fund asks U.S. judge to vacate award

* Fund had sought $4 billion in damages

* Stems from $7.5 billion 2007 investment in Citi

By Nate Raymond

NEW YORK, Nov 8 (Reuters) - A lawyer for Abu Dhabi Investment Authority urged a U.S. judge on Thursday to overturn an arbitration panel's ruling favoring Citigroup Inc in a dispute over a $7.5 billion investment in Citi during the subprime meltdown.

The Abu Dhabi sovereign wealth fund last year lost the arbitration case, which sought $4 billion in damages from what it said were the fraudulent representations by Citi leading up to the deal. At a hearing in U.S. District Court in Manhattan, a lawyer for the fund said the arbitrators applied the wrong law to come to its decision.

"They manifestly disregarded the principles," David Elsberg, a lawyer for the ADIA, said Thursday.

U.S. District Judge George Daniels repeatedly pressed Elsberg on how the arbitrators used the wrong legal analysis or whether it would have made any difference.

"You can't simply say they gave them credit for 10 things and us for eight, and so that's a manifest disregard of the law," he said.

The ADIA bought into Citigroup in November 2007, as the bank moved to boost its balance sheet following billions of dollars in writedowns from subprime mortgage investments.

Under the deal, Citi bonds bought by ADIA would convert to common stock in 2010 and 2011 at prices between $31.83 to $37.24 between March 2010 and September 2011.

But in December 2009, ADIA began arbitration, accusing Citi of "grossly misstating" the bank's financial condition, according to court papers. ADIA sought to rescind the investment or receive $4 billion in damages.

Shares in Citi the day it disclosed the arbitration in 2009 had closed at $3.56. They closed on Thursday much higher, at $36 a share, down 0.14 percent on the day.

In October 2011, a three-arbitrator panel of the International Centre for Dispute Resolution of the American Arbitration Association issued an award finding ADIA had failed to establish its claim.

ADIA went to court in January 2012 seeking to vacate the award. The fund argues that the arbitration tribunal incorrectly applied New York law to its claims of fraud rather than those of Abu Dhabi, which doesn't require as much proof.

Elsberg said applying the wrong law to the case was equivalent to a baseball umpire using the wrong rule book.

"Because of the choice of law, it was judged against the wrong standard," Elsberg said.

But Citigroup counsel Leslie Fagen said the panel had laid out all the factors for why it would follow New York law instead.

"They went through everything," he said. "They didn't disregard anything."

Citigroup in court papers has also argued the court should confirm the award.

The case is Abu Dhabi Investment Authority v. Citigroup, Inc., U.S. District Court for the Southern District of New York, 12-cv-00283.

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