Citigroup Sued For Fraud
PITTSBURGH (AP) - American Eagle Outfitters Inc. sued Citigroup Global Markets Inc. and accused it of fraudulently inducing it to buy $258 million worth of auction rate securities that it now can sell only at a significant loss, if at all.
Citigroup represented the securities as safe and liquid and therefore compatible with the Pittsburgh-based clothing retailer's conservative investment policies, according to the suit. Instead, American Eagle claimed, Citigroup knew there was not enough demand for the securities to keep them liquid.
The market for auction rate securities collapsed last February, leaving tens of thousands of investors nationwide holding damaged securities that couldn't be readily sold for cash, according to securities regulators.
Citigroup represented itself as the auction rate securities "market leader'' and said it would provide immediate liquidity by selling the securities to other investors, or buying them itself, according to the suit filed Wednesday in U.S. District Court in Pittsburgh by American Eagle Outfitters and its subsidiary, AEO Management Co.
"American Eagle reasonably and justifiably relied to its detriment upon Citi's material misrepresentations and omissions of material fact and fraudulent conduct,'' the suit said.
Citigroup hid from American Eagle that it had internal limits on how many of the Citigroupbrokered securities it would buy and that the market for Citigroup brokered securities would collapse when it stopped buying them last February, according to the suit.