US judge gives green light to Adia claims against Citigroup

New York judge refuses Citi bid to halt arbitration against it by the Abu Dhabi Investment Authority.

A judge in New York has refused an attempt by Citigroup to halt arbitration proceedings initiated by the Abu Dhabi Investment Authority (Adia). Adia is seeking US$2 billion in damages.

The district judge P Kevin Castel yesterday ruled that it was up to arbitrators, rather than the courts, to rule on the validity of the new arbitration proceedings, which Adia had launched in August.

In response to those proceedings, Citigroup filed a lawsuit in the courts, claiming that the resolution of previous arbitration proceedings between the two parties in October 2011 – in the bank's favour – should preclude the launch of new arbitration.

The bank characterised the new proceedings as an assault on the previous decision and as an improper attempt to prolong litigation.

The dispute between the two parties stems from Adia’s $7.5bn investment in Citigroup in 2007. Under the terms of the agreement, the investment was to be converted into Citigroup common stock on four dates between March 2010 and September 2011.

Adia first sought arbitration against Citigroup in December 2009, claiming that its investment was diluted when the bank issued preferred shares – later converted to common stock – to other investors on more favourable terms than those given to Adia.

Adia asserted claims of common law fraud, securities fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, and sought damages.

Adia’s claims were rejected completely by the arbitration panel in October 2011. The authority subsequently sued in a US court to have the decision overturned, but the claim was dismissed in March of this year. Adia is appealing that court’s decision, while separately launching the new arbitration proceedings.

Spokesmen for Adia and Citigroup in the UAE declined to comment.