Published On: March 1, 2016

Citigroup was recently sued for fraud by investors and creditors of a bankrupt Mexican oil services firm over claims that they were harmed by a loan scheme. The same scheme caused the bank to cut 2013 profit by $235 million and fire at least 12 people. The bank’s loans allegedly led to the collapse of the Mexican firm, Oceanografia SA, and caused Rabobank Groep, a Dutch lender, to lose at least $1.1 billion, according to a lawsuit filed Friday in Florida federal court. Rabobank and other investors separately filed a negligence suit in Delaware state court against auditor KMPG LLP.

Citigroup’s Mexican subsidiary, Banamex, made short-term loans to Oceanografia, which worked for state-run Petroleos Mexicanos, or Pemex. Pemex then repaid the bank for the loans. According to Citigroup Chief Executive Officer Michael Corbat, $400 million of accounts receivable from Oceanografia were fraudulent. He is now working with Mexican authorities to find out who perpetrated the crime. Many investors claim that the bank conspired with Oceanografia to accept falsified work estimates, even when the firm became increasingly dependent on cash advances to survive. Then Pemex repaid the bank with millions of dollars in interest. Mexican authorities placed Oceanografia in bankruptcy and later charged several Citigroup employees with crimes, according to a complaint, which claims that the bank violated the Racketeer Influenced and Corrupt Organization Act and engaged in fraud while breaching its fiduciary duty. It is seeking compensatory and punitive damages.

Allegedly, Oceanografia’s cash advance requests were subject to a two-step approval process by Citigroup to verify that documents submitted accurately reflected the terms of its contracts with Pemez. In at least 66 cash requests, Citigroup did not satisfy either step, failing to detect falsified documents, according to the complaint. Subsequently, Citigroup increased the cash flow to the firm to try to extract money from Pemex.

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