A lawsuit has been filed and is seeking class action status against the bank alleging deceptive marketing of auction rate securities. The lawsuit was filed in US District Court in Manhattan and claims Citigroup represented auction rate securities as liquid equivalents to money market funds, and failed to make material disclosures about those securities. The lawsuit is seeking class action status on behalf of investors who purchased auction rate securities through Citigroup between March 2003 and February 2008.
The complaint claims that instead of disclosing the true nature of auction rate securities and the substantial liquidity risks associated with them, Citigroup continued to push as many auction rate securities as possible unto its customers in order to unload inventory off its already troubled balance sheet.
Auction rate securities are long-term bonds that have a short-term debt component, in which interest rates are reset in auctions on a daily, weekly or monthly basis. In February 2008, several auctions failed, driving up the interest rates for issuers such as municipalities, student loan providers and museums. The collapse of the auction rate securities market has left investors locked into those illiquid investments.
