Terra Securities ASA said the Bankruptcy Estate of Terra Securities ASA and seven Norwegian municipalities commenced an action on August 10 in New York seeking over $200 million from Citigroup (C) for violations of the United States securities laws. The lawsuit contends that Citigroup misled Terra and the municipalities in 2007 and thereby induced the municipalities into purchasing notes linked to a "tender option bond," or TOB, fund purportedly managed by Citigroup.
TOB funds involve leveraged investments in United States municipal bonds. Ultimately, the municipalities lost approximately $90 million to Citigroup, and Terra, a Norwegian securities firm, suffered additional losses when it was forced into bankruptcy.
The case was filed in the United States District Court for the Southern District of New York and names as defendants Citigroup, Inc., Citigroup Global Markets, Inc. and Citigroup Alternative Investments LLC. Kasowitz, Benson, Torres & Friedman LLP represents Terra and the Norwegian municipalities of Bremanger, Hattfjelldal, Hemnes, Kvinesdal, Narvik, Rana and Vik.
The lawsuit contends that the deceptive materials provided to Terra for presentation to the municipalities were prepared in New York by Citigroup Global Markets and Citigroup Alternative Investments. The materials and their general disclaimers made no adequate reference to the significant credit risk underlying the fund's strategy, presenting it instead as a low-risk arbitrage opportunity, according to the lawsuit.
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