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In re Citigroup Inc. Shareholder Derivative Litigation
Delaware Court of Chancery
964 A.2d 106 (Del. Ch. 2011)
In 2005, the housing bubble burst. This caused a number of subprime lenders to fail. According to its shareholders (plaintiffs), Citigroup Inc. (Citigroup) began engaging in subprime lending in 2006. Citigroup sold financial products that the plaintiffs claim exposed it to $55 billion in subprime liability. By November 2007, Citigroup was forced to give $7.6 billion in emergency financing to its structured investment vehicles (SIVs) and then bail them out by taking on $49 billion in assets. Several of Citigroup’s directors sat on the Audit and Risk Management Committee (ARM), which met frequently to discuss and manage risk. Citigroup's certificate of incorporation included a provision exculpating directors from personal liability for breaches of fiduciary duty, except for actions taken in bad faith, intentional misconduct or illegality, or disloyalty. Nonetheless, the plaintiffs sued existing and former Citigroup directors and officers (defendants), seeking to hold them personally liable for the company’s losses. The plaintiffs claimed that the defendants failed to oversee, manage, and disclose Citigroup’s exposure related to the subprime lending market, despite red flags that the housing market was about to collapse.
Rule of Law
Holding and Reasoning (Chandler, J.)
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