Shareholders Sue Citigroup Officials for Indulging in Sub-Prime Mortgages that Led to Foreclosures

March 9th, 2009 | Tags: Foreclosure Notice

Delaware judge dismissed the claims made by shareholders who were suing Citigroup officials for indulging in sub-prime mortgages that led to the foreclosure fiasco.

The directors of a corporate body cannot be held responsible for undertaking risks that cause huge losses unless it was done in bad faith and with knowing disregard of the financial obligations and ethics of the firm.

Chancellor William Chandler in a recent ruling in the last week of February tossed aside most of the claims alleged by the plaintiffs. The shareholders wanted to hold the present and former directors as well as officers of Citigroup for the losses caused by its dabbling in the sub-prime mortgages that led to the foreclosure mess.

According to Chandler the shareholders could proceed with only one allegation – waste connected with the approval by the board of $68 million good-bye package for Charles Prince. Prince was formerly the CEO of Citigroup and went away from the firm in 2007.

Other claims made by the plaintiff were also dismissed. The judge said that the shareholders had failed to substantiate their allegations that the New York based Citigroup personnel failed to properly keep track and reveal the extent of the company’s exposure to sub-prime securities. The plaintiffs held they should be held liable for the subsequent failures and financial losses.

Chandler said in his written statement, “It is understandable that investors, and others, want to find someone to hold responsible for these losses, and it is often difficult to distinguish between a desire to blame someone and a desire to force those responsible to account for their wrongdoing.” He further added, “We must not let our desire to blame someone for our losses make us lose sight of the purpose of our law. Ultimately, the discretion granted directors and managers allows them to maximize shareholder value in the long term by taking risks without the debilitating fear that they will be held personally liable if the company experiences losses.”

Chandler is the head of the court that draws the most amount of attention in the country.

The shareholders contend that by dabbling in sub-prime mortgages the firm was playing around with $55 billion. The directors and the officers totally ignored many warnings that started coming through from 2005. Sub-prime lenders were making bankruptcy filings and this was coupled by a sharp increase in foreclosures. These were writings on the wall of what was about to burst open in the property and financial markets.