| NEW YORK
NEW YORK Nov 25 A U.S. judge has rejected
Citigroup Inc's effort to block the Abu Dhabi Investment
Authority from seeking a second arbitration over the sovereign
wealth fund's $7.5 billion investment in late 2007 to shore up
the then-struggling bank.
U.S. District Judge Kevin Castel in Manhattan said on Monday
that arbitrators, not federal judges, had power to decide
whether Citigroup's success in the first arbitration barred the
ADIA from pursuing a second arbitration, in which it seeks $2
billion of damages or to rescind its investment.
The case arose from one of Citigroup's earlier efforts to
shore up its capital base, in the wake of billions of dollars of
writedowns tied to subprime mortgages. Citigroup ultimately
required three federal bailouts, which it has since repaid. It
is now the third-largest U.S. bank by assets.
In Nov. 2007, the ADIA invested the $7.5 billion in exchange
for a 4.9 percent stake in Citigroup, surpassing Saudi Prince
Alwaleed bin Talal as the New York-based bank's largest
Two years later, the fund began arbitration proceedings in
which it accused Citigroup of fraudulently inducing its
investment, in part by issuing preferred shares to other
investors that diluted its stake.
An arbitration panel rejected the ADIA's claims in Oct.
2011, and U.S. District Judge George Daniels in Manhattan
confirmed that ruling in March.
But the ADIA in August sought a second arbitration, raising
two claims it had raised in the first: breach of contract, and
breach of an implied covenant of good faith and fair dealing.
Citigroup sought an injunction to block the second
arbitration, calling it an "assault" on the first that would
threaten U.S. judges' ability to enforce their own rulings.
But Castel said the law, and the terms of the 2007
investment agreement, left him without power to decide whether
the first arbitration precluded a second.
"The broad arbitration clause was the product of intensive,
arm's length negotiations," Castel wrote. "The court is
confident that a panel of arbitrators will be fully competent to
apply established principles of claim preclusion to determine,
as threshold matter, whether the second arbitration is
foreclosed by the judgment in the first."
Citigroup spokeswoman Shannon Bell declined to comment.
Peter Calamari, a partner at Quinn Emanuel Urquhart &
Sullivan representing the ADIA, did not immediately respond to a
request for comment.
As part of its investment, the ADIA had received securities
from Citigroup that could be converted to common stock at prices
between $31.83 and $37.24 from March 2010 to Sept. 2011.
After adjusting for a 1-for-10 reverse stock split,
Citigroup shares have not traded that high since December 2007.
The case is Citigroup Inc v. Abu Dhabi Investment Authority,
U.S. District Court, Southern District of New York, No.