Citigroup Inc., which is probing reports its Mexican unit was involved in $430 million of fraudulent loans, was ordered by a judge to turn over internal records about the deals to an Oklahoma pension fund suing the bank.
New York-based Citigroup must provide files related to fraud allegations at Banco Nacional de Mexico SA, known as Banamex, including board materials about loans to oil services firm Oceanografia SA, to the $2.1 billion Oklahoma Firefighters Pension and Retirement System, Delaware Chancery Court Magistrate Abigail LeGrow ruled Tuesday.
The pension fund is investigating whether Citigroup executives ignored warning signs about the loans to the Mexican oil services company and whether the bank's fraud-detection policies were flawed, according to court filings. The documents might show what Citigroup's directors and executives knew.
“Plaintiff had stated a credible basis to infer possible mismanagement or wrongdoing by the board or senior management at Citigroup regarding the fraud at Banamex,” Ms. LeGrow said in her decision. The magistrate's recommendation still needs a judge's approval.
Mark Costiglio, a Citigroup spokesman, declined to comment on the magistrate's ruling.
Citigroup said earlier this year that invoices backing Oceanografia's loans were found to be fraudulent. That forced the bank to reduce previously reported earnings for 2013 by $235 million, casting doubt on the bank's controls and management.
The U.S. Justice Department and Securities and Exchange Commission have opened investigations into whether the bank's internal controls were deficient and whether the loans were tied to money-laundering efforts.
Ms. LeGrow rejected Citigroup's argument that the pension fund overreached in demanding access to the company's “fraud prevention and detection” files related to the Banamex loans as part of its books-and-records suit. Investors file such cases to win access to corporate records to decide whether to sue over a scandal.
The case is Oklahoma Firefighters Pension & Retirement System vs. Citigroup Inc., C.A. 9587, Delaware Chancery Court (Wilmington).
