A long‑running fraud fight over Citigroup’s dealings with a once‑high‑flying Mexican oil contractor is finally headed toward trial on the merits after SCOTUS declined to review Citigroup’s appeal. Investors who say they lost more than a billion dollars have cleared every major early hurdle and now get to test their claims in open court.
The Players Involved
You might be familiar with Citigroup as a huge global bank based in New York that runs everything from checking accounts and credit cards to big corporate and government deals. It offers banking, lending, and investing services to people, companies, and public institutions all over the world.
The other companies involved in the lawsuit are various investors that did business with a Mexican oil‑services company called Oceanografía (OSA). They include shipping and service companies like Otto Candies (not a distributor of chocolate bars, sad to say), and a bunch of other companies you’ve probably never heard of. They later brought the lawsuit, so we’ll refer to them collectively as “the plaintiffs.”
Starting in 2008, OSA did offshore work for Pemex, Mexico’s state oil company. Citigroup, working through Banamex in Mexico and a team in New York, set up a cash‑advance program, known as a credit facility, that let OSA get cash up front based on what Pemex owed it.
Controls Weaken as Exposure Grows
According to the plaintiffs, Citigroup kept making this facility bigger and more important over time. They say Citigroup and its affiliates acted as trustee and collateral agent for a 2008 OSA bond deal, served as fiduciary for a Mexican trust meant to protect bondholders, and acted as OSA’s banker and advisor on restructurings and acquisitions.
OSA’s financial position weakened while Citigroup continued to expand the amount of credit available. Citigroup raised OSA’s borrowing limits several times and ultimately advanced more than 3.3 billion dollars, even though OSA was already highly leveraged and its revenues were not increasing at the same rate.
Citigroup had internal procedures meant to govern these advances, including requirements that OSA submit Pemex‑signed work estimates and authorizations for each request. Those procedures were not followed in OSA’s case. OSA presented documents with forged Pemex signatures, and Citigroup still approved the advances. Citigroup and OSA also entered into a separate “Regulatory Contract” that effectively shifted responsibility for checking the supporting documents to OSA itself, so the company requesting the money was placed in charge of validating the very invoices on which the advances were based.
Raising Money, Raising Risk
After Citigroup loosened its controls and kept expanding the credit facility, its relationship with OSA deepened in ways that, according to the investors, set up their eventual losses. Citigroup or its subsidiaries took on formal roles in OSA’s capital raising: it served as trustee for OSA’s 2008 bond issuance and as fiduciary of a Mexican trust created in connection with a 2013 bond issuance, both meant to channel cash and protect creditors if OSA defaulted. Citigroup also acted as OSA’s banker and advisor, helping restructure OSA’s debts, prepare investor presentations, and advise on acquisitions, which gave it detailed insight into OSA’s finances.
During this time, OSA raised money from bond investors and continued to borrow heavily under the Citigroup facility while its true financial condition worsened. Plaintiffs later claimed that investors received offering memoranda, investor presentations, and direct communications while Citigroup served in trustee and fiduciary roles. These materials portrayed OSA as financially sound and stressed the stability of the Pemex‑backed cash‑advance arrangements. But they did not reveal that documents had been forged, that controls were weak, or that OSA depended heavily on the facility to stay afloat.
Losses Mount, Lawsuit Follows
In early 2014, Mexican authorities began investigating OSA. They uncovered problems and concluded that OSA had violated Mexican law. Authorities then barred OSA from entering new Pemex contracts.
As a result, OSA was seized, placed into restructuring, and ultimately collapsed. Citigroup’s own internal review found hundreds of millions of dollars in fraudulent advances. Regulators in Mexico and in the United States then took action against the bank. Investors and creditors who had lent money to OSA or bought its bonds were left with losses of more than a billion dollars.
The plaintiffs then filed this lawsuit against Citigroup in 2016 to try to recover those losses. In the suit, they accuse Citigroup of fraud and RICO violations. They also claim Citigroup aided and abetted the wrongdoing and bring other related claims tied to its alleged role in the scheme and in communications with them.
Dismissal to Revival in Lower Courts
At the district court, Citigroup did not immediately have to fight over whether it had actually committed fraud. Instead, it first argued that the case should not be heard in the United States at all and asked the judge to dismiss it under the doctrine of “forum non conveniens,” saying Mexico was the better place for the lawsuit.
The judge agreed, stressing that most of the key events, documents, and witnesses were in Mexico, that OSA, Pemex, and Banamex were all Mexican entities, and that Mexico had a strong interest in handling a dispute so closely tied to its own oil industry and banking system. On that basis, the court dismissed the case without prejudice so the plaintiffs could refile in Mexico, without reaching the merits of their fraud and RICO claims against Citigroup.
The plaintiffs appealed, and the Eleventh Circuit Court of Appeals saw things differently. In an earlier 2020 opinion, the appellate court held that the district judge gave too little weight to the choice of a U.S. forum by the many domestic plaintiffs and had relied too heavily on Citigroup’s framing of the facts as “mostly Mexican,” even where that conflicted with the complaint. It concluded that Citigroup had not met its burden to show that Mexico was clearly the better forum and that important ties to the United States—including Citigroup’s New York‑based division that ran the facility and its Miami Latin America headquarters—made it reasonable to litigate in federal court.
The Eleventh Circuit therefore reversed the forum‑non‑conveniens dismissal and sent the case back to the district court so the claims against Citigroup could move forward in the United States.
Still undeterred, the defendants continued contesting the case, this time arguing the case should be dismissed for failure to state a claim. The district court agreed and dismissed all seven counts offered by the plaintiffs in the third amended complaint. The plaintiffs appealed, and the 11th Circuit again disagreed with the district court. The court clarified that, under Rule 9(b) and Florida law, knowledge in aiding‑and‑abetting fraud need only be plausibly alleged — not shown through a PSLRA‑style “strong inference” standard — and remanded for further proceedings.
No Relief from the Supreme Court
Citigroup tried one more time to shut the case down before trial by asking the U.S. Supreme Court to step in. The company filed a petition asking the high court to review the Eleventh Circuit’s decision, arguing that the appellate court had applied the wrong standards for fraud and aiding‑and‑abetting claims.
But that effort failed. On Monday, SCOTUS denied certiorari without explanation (which is not atypical).
This means that the Eleventh Circuit’s ruling now firmly controls. The upshot is that the investors’ fraud, RICO, and aiding‑and‑abetting claims will move forward toward discovery and, potentially, trial in federal court.
Citigroup continues to deny wrongdoing, but it will now have to defend its conduct on the merits instead of relying on procedural arguments about where or how the case should be heard.
Related Resources:
- Epic Lays Out a New Game Plan for Google (FindLaw’s Federal Courts)
- Fraud and Financial Crimes (FindLaw’s Learn About the Law)
- Compelled Interest? 1st Circuit Considers Challenge to Maine IOLTA Program (FindLaw’s Federal Courts)
