Bloomberg News

Citigroup Settles Suit Over Bond Sale to Texas Fund

June 18, 2007

Citigroup Inc. (C:US), the largest U.S. bank, settled a lawsuit in which a Texas hedge fund accused a former Citgroup unit of selling a company's bonds after gaining confidential information that the issuer might go bankrupt.

R2 Investments LDC, the Fort Worth, Texas, hedge fund, accused New York-based Citigroup's former asset-management business of selling at least $30 million in World Access Inc. bonds after finding out the telecommunications company's finances were worse than was publicly disclosed. The trial was scheduled to begin today.

``There will be a formal settlement agreement completed between the parties and pursuant to that we will be filing a stipulation of settlement at some point in the near future,'' R2 Investments lawyer Mark Cohen told U.S. District Court Judge John Sprizzo in New York today. ``The terms of the settlement are confidential.''

R2 Investments alleged in the suit that the Citigroup unit ```blew out' most if not all of its substantial position, selling the notes to ultimate buyers like'' the plaintiffs ``who had not been privy to'' the inside information.

The hedge fund also named a unit of New York investment bank Jefferies & Co. (JEF:US) as a defendant in the lawsuit, filed in 2001. R2 Investments bought the bonds from Jefferies, which had bought them from the Citigroup unit. Jefferies had given Citigroup a so-called big-boy letter saying it knew Citigroup had nonpublic information about the bonds, according to the complaint.

Jefferies spokesman Tom Tarrant didn't immediately return a call for comment.

Settlement Buys Peace

``I will regard the case as settled'' Sprizzo told the lawyers. ``My God, this is the shortest conference we've ever had in this case'' said the judge, noting the trial's planned start date was six years after the suit was filed.

Sprizzo concluded the hearing by saying, ``A settlement is like anything else, but it does buy you peace. One good thing about settlements is you don't have to worry about pouring a lot of money into litigation and coming up short.''

Cohen, of Cohen & Gresser in Manhattan, told Judge Sprizzo the terms of the settlement are binding as of today. He said he would be make a formal filing with the court ``within a week.'' He wouldn't comment after the court hearing.

Reached for comment after court, Citigroup spokesman Stephen Cohen said, ``The settlement is confidential but we're glad this is behind us.''

Bankruptcy Case

World Access filed for protection from creditors in U.S. Bankruptcy Court in Chicago in April 2001.

Citigroup shares fell 2 cents to $53.96 in New York Stock Exchange composite trading. The stock has risen 10 percent in the past year, compared with a 7.8 percent rise in the 24-member KBW Bank Index.

The Citigroup business that was a defendant in the lawsuit, Salomon Smith Barney, is now owned Legg Mason Inc., which wasn't a defendant in the case.

The case is R2 Investments LDC v. Salomon Smith Barney Inc., et al, 01cv3598, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at

To contact the editors responsible for this story: Patrick Oster at; Erik Schatzker at

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