NEW YORK (Reuters) - An investor lawsuit contends that Citigroup Inc insiders, including senior counselor and former U.S. Treasury Secretary Robert Rubin, sold more than $150 million of their own shares at inflated prices while concealing the bank’s true financial health.
The allegations were made in a nearly 500-page court complaint filed by shareholders who are suing the bank for fraud related to its disclosures over mortgage-linked securities. The complaint was filed late Monday in U.S. District Court in Manhattan.
Citigroup spokesman Mike Hanretta said on Wednesday the lawsuit is without merit, and the bank “will defend against it vigorously.”
The No. 2 U.S. bank is trying to shore up investor confidence as it disposes of assets and sheds 52,000 jobs after securing a government rescue aimed at limiting potential losses on $306 billion in troubled assets.
Shares have tumbled to less than $8 a share, down from more than $55 apiece at the end of 2006.
In their lawsuit, the shareholders did not bring a claim of improper insider trading against the defendants under federal securities laws.
Instead, they contend the company and certain executives concealed the risks of billions of dollars worth of financial instruments and deceived investors by artificially boosting the company’s stock until “the truth emerged” and the share price fell.
The shareholders contend that Rubin, former Chief Executive Charles Prince and other current and former executives engaged in “suspicious” stock sales that were “made at times calculated to maximize the personal benefits from undisclosed inside information.”
Together, the insiders sold nearly 3 million shares of Citigroup stock at artificially inflated prices for combined proceeds of about $150 million in the period from January 1, 2004, through February 22, 2008, the lawsuit contends. The complaint says the sales “were unusual in timing and/or amount.”
Rubin registered proceeds of $30.6 million, while Prince got $26.5 million, former Chief Operating Officer Robert Druskin got nearly $32 million and former Global Wealth Management unit chief Todd Thomson got $25.7 million, according to the lawsuit.
The four were not immediately available for comment.
CEO Vikram Pandit is not named as a defendant. Pandit replaced Prince last December.
The lawsuit seeks class-action status on behalf of other stockholders. The defendants are due to file their response early next year.
The lead plaintiff is a group of ex-employees and directors at Automated Trading Desk, an electronic trading firm sold to Citigroup for $680 million in 2007.
The group, represented by law firm Kirby McInerney LLP, contends that Citigroup shares they received as part of the buyout — valued at $52 each at the time — were artificially inflated because of misstatements and deception by the defendants.
“Defendants knew full well that Citigroup was exposed to increasingly risky assets and decreasingly valuable assets, primarily in the form of mortgage-related instruments, and dissembled, concealed and schemed to avoid having those facts fall into public hands,” according to the complaint.
The stock rose 20 cents to $7.42 Wednesday on the New York Stock Exchange.
Reporting by Martha Graybow; editing by Jeffrey Benkoe