New York Federal Court Dismisses Class Action on Behalf of Citigroup Employees

On June 7, 2011, Judge Sidney Stein of the U.S. District Court for the Southern District of New York dismissed a suit brought by participants in the Citigroup employee stock purchase program that asserted claims against various Citigroup defendants. The employees alleged violations of Section 12(a)(2) of the ’33 Act, Sections 10(b) and 10b-5 of the ’34 Act, and various Minnesota state laws, contending that, in 2007, the defendants failed to disclose risks to Citigroup associated with the use of subprime mortgages in its CDOs and structured investment vehicles and also misrepresented Citigroup’s overall business outlook. Judge Stein dismissed all of the federal claims concerning Citigroup’s overall business outlook statements, finding plaintiffs had failed to allege a material misstatement. The court dismissed the remainder of the federal claims, finding that the Section 12(a)(2) claims were untimely because the allegedly concealed truth was disclosed no later than the end of 2007. The court also found that plaintiffs had failed to raise specific allegations to raise a strong inference of scienter as required for their Section 10(b) claims. Finally, Judge Stein dismissed the state law claims, finding that (a) the deceptive trade practices claim was precluded by SLUSA, and (b) plaintiffs could not maintain a breach of fiduciary duty claim because the allegations did not support the existence of a fiduciary relationship between plaintiffs and defendants. The Court also dismissed unrelated state law claims concerning the forfeiture provisions of the stock plan for departing employees and the enforceability of releases obtained from certain plan participants. Stein Order.