City of Sunrise Firefighters Pension Fund v. Citigroup Inc. et al

Filing 139

OPINION & ORDER re: 115 MOTION to Dismiss the Consolidated Amended Complaint. filed by Citigroup Inc., Deborah C. Wright, Barbara Desoer, Duncan P. Hennes, Ellen M. Costello, Franz B. Humer, Michael E. ONeill, John C. Gerspach, Pet er B. Henry, Ernesto Zedillo Ponce De Leon, Anthony M. Santomero, Michael L. Corbat, James S. Turley, Eugene M. McQuade, John C. Dugan, Lew W. Jacobs IV, Grace E. Dailey, Renee J. James, S. Leslie Ireland, Alexander Wynaendts, Mark A. L. Mason. For the foregoing reasons, Defendants' motion to dismiss is GRANTED. Plaintiffs may move for leave to amend within thirty days of this order. The Clerk of the Court is directed to close the open motion [dkt. no. 115]. SO ORDERED. (Signed by Judge Loretta A. Preska on 3/24/23) (yv)

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 1 of 64

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE CITIGROUP SECURITIES
LITIGATION

20 Civ. 9132 (LAP)
OPINION & ORDER

Loretta A. Preska, Senior United States District Judge:
Before the Court is the Rule 12(b)(6) motion to dismiss the
Consolidated Amended Class Action Complaint1 filed by Citigroup
Inc. (“Citigroup”), three Citigroup officers2 (the “Officer
Defendants”), and seventeen Citigroup directors3 (the “Director
Defendants”).4

Lead Plaintiff Public Sector Pension Investment

Board (“PSP” or “Lead Plaintiff”), and Named Plaintiff Anchorage
Police & Fire Retirement System (“Anchorage”) (together

Consolidated Amended Class Action Complaint (“CAC”), dated Apr.
20, 2021 [dkt. no. 72].
2 Michael L. Corbat, John C. Gerspach, and Mark A. L. Mason.
3 Ellen M. Costello, Grace E. Dailey, Barbara J. Desoer, John C.
Dugan, Duncan P. Hennes, Peter B. Henry, Franz B. Humer, S.
Leslie Ireland, Lew W. Jacobs, IV, Renee J. James, Eugene M.
McQuade, Michael E. O’Neill, Anthony M. Santomero, James S.
Turley, Deborah C. Wright, Alexander R. Wynaendts, and Ernesto
Zedillo Ponce de Leon.
4 (See Defendants’ Motion to Dismiss, dated June 4, 2021 [dkt.
no. 115]; Defendants’ Memorandum of Law in Support of Their
Motion to Dismiss the Consolidated Class Action Complaint
(“Defs.’ Br.”), dated June 4, 2021 [dkt. no. 116]; Defendants’
Reply Memorandum of Law in Further Support of Their Motion to
Dismiss the Consolidated Class Action Complaint (“Defs.’
Reply”), dated Aug. 18, 2021 [dkt. no. 127]; Declarations of
Sharon L. Nelles (“Nelles Decls.”), dated June 4 and Aug. 18,
2021 [dkt. nos. 117, 128].) Collectively, the Court will call
Citigroup, the Officer Defendants, and the Individual Defendants
“Defendants.” When referring to the Officer Defendants and the
Director Defendants the Court will use “Individual Defendants.”
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Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 2 of 64

“Plaintiffs”)—on behalf of a putative class of purchasers of
Citigroup’s securities—oppose the motion.5

For the reasons

below, the motion is GRANTED, and the CAC is DISMISSED without
prejudice.
I.

Background
The CAC alleges securities fraud claims under 15 U.S.C.

§ 78j(b) and Rule 10b-5 against Citigroup, the Officer
Defendants, and the Director Defendants, as well as controlperson claims under section 20(a) against the Officer
Defendants.
A.

(CAC ¶¶ 28-51, 575-586.)

The Parties
1.

Corporate Defendant

Citigroup is a Delaware corporation that provides financial
services and products to consumers, corporations, governments,
and institutions around the world, with “over $2.2 trillion in
total assets [and] approximately 200 million customer accounts.”
(CAC ¶ 29.)
2.

Officer Defendants

Michael Corbat was CEO and Director of Citigroup from 2012
through February 26, 2021.

(Id. ¶ 31.)

Corbat also served as a

Director of Citibank from June 2020 through February 26, 2021.
(Id.)

Plaintiffs allege that Corbat’s sudden departure in

(See Opposition to Defendants’ Motion to Dismiss the Complaint
(“Opp. Br.”), dated July 19, 2021 [dkt. no. 123].)
5

2

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February 2021 resulted from enforcement orders against Citigroup
for allegedly longstanding and unremediated deficiencies in
internal controls and risk management systems.

(Id.)

John Gerspach was CFO of Citigroup from July 2009 through
February 22, 2019.

(Id. ¶ 32.)

In this role, Gerspach reported

directly to Corbat during the Class Period and chaired or cochaired several management committees related to governance and
oversight.

(Id.)

Gerspach’s successor is Defendant Mark Mason, who has been
with Citigroup since 2001 and has served as Citigroup’s CFO
since February 23, 2019.

(Id. ¶ 33.)

As CFO, Mason chairs or

co-chairs several management committees related to governance
and oversight.

(Id.)

Plaintiffs allege that the Officer Defendants were provided
advance or contemporaneous copies of—and possessed the power and
authority to approve and control the contents of—Citigroup’s
reports to the SEC, press releases, and presentations alleged by
Plaintiffs to be false and misleading, yet failed to prevent
their issuance or to cause them to be corrected.
3.

(Id. ¶ 34.)

Director Defendants

Plaintiffs name seventeen current and former directors of
Citigroup, in addition to Gerspach.
Ellen Costello has served since 2016 as a Director of
Citigroup and Citibank and as a member of Citigroup’s Audit
3

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Committee.

(Id. ¶ 35.)

Ms. Costello has served as a member of

Citigroup’s Risk Management Committee since 2018.

(Id.)

Grace Dailey has served since 2019 as a Director of
Citigroup and a member of Citigroup’s Audit and Risk Management
Committees.

(Id. ¶ 36.)

a Director of Citibank.

In 2020, Ms. Dailey briefly served as
(Id.)

Prior to joining Citigroup, Ms.

Dailey had a thirty-five-plus-year career at the OCC,
culminating in her role as Senior Deputy Comptroller for Bank
Supervision Policy and Chief National Bank Examiner.

(Id.)

Barbara Desoer, a current Director and former CEO of
Citibank, has served since 2019 as a Director of Citigroup and a
member of Citigroup’s Risk Management Committee.

(Id. ¶ 37.)

Ms. Desoer served on Citigroup’s Audit Committee from 2019 to
2020.

(Id.)

John Dugan has since 2017 served as a Director of Citigroup
and since 2019 as Chairman of the Citigroup Board.

(Id. ¶ 38.)

Mr. Dugan has served on Citigroup’s Audit and Risk Management
Committees since joining the board in 2017.

(Id.)

From 2005 to

2010, Mr. Dugan served as the Comptroller of the Currency and a
director of the FDIC.

(Id.)

Duncan Hennes has since 2013 served as a Director of both
Citigroup and Citibank.

(Id. ¶ 39.)

Mr. Hennes has since 2015

served a member of Citigroup’s Risk Management Committee, since

4

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2019 as Chair of Citigroup’s Risk Management Committee and since
2019 as a member of Citigroup’s Audit Committee.

(Id.)

Peter Henry has served since 2015 as a Director of
Citigroup and as a member of Citigroup’s Audit Committee.
¶ 40.)

(Id.

Mr. Henry served as a Director of Citibank in 2015 and

part of 2016.

(Id.)

Franz Humer served as a Director of Citigroup from 2012 to
April 2019, a member of Citigroup’s Risk Management Committee
from 2015 through 2018, and a Director of Citibank from 2012 to
2013.

(Id. ¶ 41.)

S. Leslie Ireland has served since 2017 as a Director of
Citigroup, since 2020 as a member of Citigroup’s Risk Management
Committee, and since 2017 as a Director of Citibank.

(Id.

¶ 42.)
Lew Jacobs has served since 2018 as a Director of Citigroup
and member of Citigroup’s Audit Committee and since 2020 as a
member of Citigroup’s Risk Management Committee.

(Id. ¶ 43.)

Renee James has served since 2016 as a Director of
Citigroup and member of Citigroup’s Risk Management Committee.
(Id. ¶ 44.)
Eugene McQuade, a former director, Vice Chairman, and CEO
of Citibank, served from 2015 to April 2020 as a Director of
Citigroup, from 2015 through 2019 as a member of Citigroup’s

5

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Risk Management Committee, and in 2019 as a member of
Citigroup’s Audit Committee.

(Id. ¶ 45.)

Michael O’Neill served from 2009 to January 2019 as a
Director of Citigroup, from 2012 to January 2019 as the Chairman
of the Citigroup Board, from 2016 to 2018 as a member of
Citigroup’s Risk Management Committee, and in 2015 as a member
of Citigroup’s Audit Committee.

(Id. ¶ 46.)

as a Director of Citibank from 2009 to 2012.

Mr. O’Neill served
(Id.)

Anthony Santomero served from 2009 to April 2019 as a
Director of Citigroup and from 2015 through 2018 as Chair of
Citigroup’s Risk Management Committee and a member of
Citigroup’s Audit Committee.

(Id. ¶ 47.)

Mr. Santomero served

as a Director of Citibank from 2009 to 2019.

(Id.)

James Turley has served since 2013 as a Director of
Citigroup and since 2015 as Chair of Citigroup’s Audit Committee
and member of Citigroup’s Risk Management Committee.
¶ 48.)

(Id.

Mr. Turkey has also served since 2013 as a Director of

Citibank.

(Id.)

Deborah Wright has served since 2017 as a Director of
Citigroup and as a member of Citigroup’s Audit Committee.
¶ 49.)

(Id.

Mrs. Wright has also served as a Director of Citibank

since 2019.

(Id.)

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Alexander Wynaendts has served since 2019 as a Director of
Citigroup and as a member of Citigroup’s Risk Management
Committee.

(Id. ¶ 50.)

Ernesto Zedillo Ponce de Leon has served since 2010 as a
Director of Citigroup and since 2015 as a member of Citigroup’s
Risk Management Committee.
B.

(Id. ¶ 51.)

Class Period Events

The Class Period runs from January 15, 2016 to October 12,
2020.

The CAC catalogues statements made in various contexts

over approximately four years and asserts that these statements
constitute a broad narrative of appropriate investment in and
compliance with risk management requirements.

Plaintiffs assert

that these statements were misleading because Citigroup was
aware that its regulators held a contrary view and that, instead
of investing adequately in risk management, Citigroup made the
deliberate choice to cut costs in hopes of improving its
efficiency ratio (expenses/revenue) and thereby boosting its
stock price.

(Id. ¶ 238.)

Plaintiffs allege that when Mr.

Corbat took office in 2012, he vowed to rein in expenses and
streamline Citigroup but emphasized that investments in risk
management and internal controls would not be impacted.
¶¶ 92, 121-130, 402, 404, 408.)

(Id.

But, according to Plaintiffs,

by the start of 2020 Citigroup had numerous outstanding
compliance- and technology-related issues and Corbat was
7

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criticized for being “reluctant to spend the money or dedicate
enough people to fix a problem the right way.”

(Id. ¶¶ 158-

159.)
Although Plaintiffs identify approximately sixty statements
as actionable, Plaintiffs’ contentions are, at bottom, that two
October 2020 consent orders between Citibank and its primary
regulators—the Office of the Comptroller of the Currency (“OCC”)
and the Federal Reserve (“Fed”) (collectively, the “October 2020
Orders”)—render dozens of prior statements about Citigroup’s
risk management false or misleading.

The Court sets forth the

alleged misstatements and relevant events below in roughly
chronological order.
1.

Alleged Misstatements in 2016

On the morning of January 15, 2016, Citigroup issued a
press release announcing its earnings for 4Q 2015 in which Mr.
Corbat stated:

“We have made sustainable investments not only

in our capital planning process but also in the risk, control
and compliance functions, which are critical to maintaining our
license to do business.

We have undoubtedly become a simpler,

smaller, safer and stronger institution.”6
Misstatement 1”).)

(CAC ¶ 310 (“Alleged

The same day, on Citigroup’s earnings

conference call, Mr. Corbat remarked:

“We’ve also made the

The underlined portions are the statements that Plaintiffs
identify as misleading.
6

8

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necessary investments in our compliance, risk, and control
functions which are critical to maintaining our license to do
business.”

(CAC ¶ 312 (“Alleged Misstatement 2”).)

On February 26, 2016, Citigroup issued its 2015 Annual
Report in which it stated that:
•

“Citi manages its risks through each of its three lines
of defense: (i) business management, (ii) independent
control functions and (iii) Internal Audit. The three
lines of defense collaborate with each other in
structured forums and processes to bring various
perspectives together and to steer the organization
toward outcomes that are in clients’ interests, create
economic value and are systemically responsible.” (CAC
¶ 315 (“Alleged Misstatement 3”) (quoting 2015 Annual
Report at 65).)7

•

“[Citigroup’s] Compliance organization is designed to
protect Citi not only by managing adherence to
applicable laws, regulations, and other standards of
conduct, but also by promoting business behavior that is
consistent with Citi’s mission and value proposition,
the principle of reasonable finance and Citi’s
compliance risk appetite.” (CAC ¶ 317 (“Alleged
Misstatement 4”) (quoting 2015 Annual Report at 66).)8

•

“Citi’s Internal Audit function independently reviews
activities of the first two lines of defense based on a
risk-based audit plan and methodology approved by the

(See also CAC ¶ 337 (quoting 2016 Annual Report at 65); CAC ¶
366 (quoting 2017 Annual Report at 67); CAC ¶ 383 (quoting 2018
Annual Report at 60); CAC ¶ 415 (quoting 2019 Annual Report at
59).) In multiple Annual Reports from 2016 through 2019,
Citigroup made identical or substantively similar statements
that Plaintiffs identify as separate alleged misstatements. The
Court will set forth each alleged misstatement in full when it
was made for the first time and identify the additional times
the alleged misstatement was made in a footnote, as it has done
here. The Court will not reproduce the alleged misstatement in
full each time and where appropriate will discuss the identical
or substantively similar statements as a group.
8 (See also CAC ¶ 339 (quoting 2016 Annual Report at 65).)
7

9

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Audit Committee of the Citigroup Board of Directors.
Internal Audit also provides independent assurance to
the Citigroup Board of Directors, the Audit Committee of
the Board, senior management and regulators regarding
the effectiveness of Citi’s governance and controls
designed to mitigate Citi’s exposure to risks and to
enhance Citi’s culture of compliance and control.” (CAC
¶ 319 (“Alleged Misstatement 5”) (quoting 2015 Annual
Report at 67).)9
•

“Citigroup’s Board of Directors oversees Citi’s risktaking activities. To do so, directors review risk
assessment and reports prepared by Risk, Compliance,
Human Resources, Legal, Finance and Internal Audit and
exercise independent judgment to question, challenge,
and when necessary, oppose recommendations and decisions
made by senior management that could cause Citi’s risk
profile to exceed its risk appetite or jeopardize the
safety and soundness of the firm.” (CAC ¶ 321 (“Alleged
Misstatement 6”) (quoting 2015 Annual Report at 68).)10

•

“Citi manages adherence to its compliance risk appetite
through the execution of its compliance program, which
includes governance arrangements, a policy framework,
customer onboarding and maintenance processes, product
development processes, transaction and communication
surveillance processes, conduct- and culture-related
programs, monitoring regulatory changes, and new
products, services and complex transactions approval
processes.” (CAC ¶323 (quoting 2015 Annual Report at
118-119) (“Alleged Misstatement 7”).)11

•

“Extensive compliance requirements can result in
increased reputational and legal risks, as failure to
comply with regulations and requirements, or failure to
comply as expected, can result in enforcement and/or
regulatory proceedings.”
* * *

(See also CAC ¶ 341 (quoting 2016 Annual Report at 66); CAC ¶
370 (quoting 2017 Annual Report at 68); CAC ¶ 387 (quoting 2018
Annual Report at 61).)
10 (See also CAC ¶ 343 (quoting 2016 Annual Report at 62).)
11 (See also CAC ¶ 347 (quoting 2016 Annual Report at 113-114).)
9

10

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Citi is Subject to Extensive Legal and Regulatory
Proceedings, Investigations and Inquiries That Could
Result in Significant Penalties and Other Negative
Impacts on Citi, Its Business and Results and
Operations.” (CAC ¶ 325 (“Alleged Misstatement 8”)
(quoting 2015 Annual Report at 62).)12
On April 26, 2016, Citigroup held its Annual Shareholder
Meeting for 2016 during which Mr. O’Neill remarked:

“I thought

we had no significant control lapses unlike the year before
where again the pay of Mike and his direct report was adjusted
downward because of those.”

(CAC ¶ 327 (“Alleged Misstatement

9”).)
On November 16, 2016, Mr. Gerspach presented at the Bank of
America Future of Financials Conference and the following
exchange between an analyst and Gerspach occurred:
ERIKA NAJARIAN: “So, just to follow-up on that.
John, a few big bank management teams are asked this
question. As you’re thinking about budgeting for 2017 and
the budget that is for risk and compliance, is it too early
to ratchet back that budget?”

(See also CAC ¶ 349 (quoting 2016 Annual Report at 61); CAC ¶
376 (quoting 2017 Annual Report at 63); CAC ¶ 395 (quoting 2018
Annual Report at 56 and further identifying the statement that
“[a] failure to resolve any identified deficiencies could result
in increased regulatory oversight and restrictions” as
misleading); CAC ¶ 427 (quoting 2019 Annual Report at 54-55 and
further identifying the statement that “there are heightened
regulatory scrutiny and expectations in the U.S. and globally
for large financial institutions, as well as their employees and
agents, with respect to, among other things, governance, risk
management practices and controls” and that “[a] failure to
comply with these requirements and expectations or resolve any
identified deficiencies could result in increased regulatory
oversight and restrictions” as misleading).)
12

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JOHN GERSPACH: “No. I’d say, we’re very, I think
Jamie captured it well. Which is that what we’re seeing
now is a plateauing of the budget that’s going into risk
and compliance. So, you’re not seeing that same rate of
growth. But similar to what Jamie was talking about, now
as we think about what’s the next phase, the next phase
isn’t necessarily just wholesale, pull the expenses out,
it’s actually taking some of those technology budgets and
then figuring out, and also doing some process
reengineering, and figuring out how to lower the cost that
we have. Still do the same things, but at a lower cost.”
(CAC ¶¶ 329-30 (“Alleged Misstatement 10”).)
2.

Alleged Misstatements in 2017

On February 24, 2017, Citigroup issued its 2016 Annual
Report.

In addition to the alleged misstatements identified

above, the 2016 Annual report stated that:
•

“Citi’s firm-wide Risk Governance Framework consists
of the policies, procedures, and processes through
which Citi identifies, measures, manages, monitors,
reports, and controls risks across the firm.” (CAC ¶
333 (“Alleged Misstatement 11”) (quoting 2016 Annual
Report at 64).)13

•

“The Risk Governance Framework has been developed in
alignment with the expectations of the Office of the
Comptroller of the Currency (OCC) Heightened
Standards. It is also aligned with the relevant
components . . . of the Federal Reserve’s Enhanced
Prudential Standards for Bank Holding Companies and
Foreign Banking Organizations.” (CAC ¶ 335 (“Alleged
Misstatement 12”) (quoting 2016 Annual Report at
64).)14

•

“To anticipate, mitigate and control operational risk,
Citi has established policies and a global framework
for assessing, monitoring and communicating

(See also CAC ¶ 362 (quoting 2017 Annual Report at 66) (same
but substituting “Company” for “firm”).)
14 (See also CAC ¶ 364 (quoting 2017 Annual Report at 66); CAC ¶
381 (quoting 2018 Annual Report at 59).)
13

12

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operational risks and the overall effectiveness of the
internal control environment across Citigroup.” (CAC
¶ 345 (“Alleged Misstatement 13”) (quoting 2016 Annual
Report at 113).)15
On April 13, 2017, Citigroup held an earnings call for the
First Quarter of 2017 during which the following exchange
between a Guggenheim analyst and Mr. Gerspach occurred:
ERIC WASSERSTROM: “But in terms of the cost associated
with complying with the changes and the regulatory
environment there, has that diminished at all?”
JOHN GERSPACH: “Well, when we talked about regulatory
costs in the past, it wasn’t necessarily focused on Asia,
it was more focused globally with a lot of it here in the
U.S. And I’d say that cost is still running high, but it’s
plateaued. And that’s given us now the opportunity to
shift some of the investment more away from just doing
regulatory work and put investment dollars towards
supporting the businesses which has been great.”
(CAC ¶ 351 (“Alleged Misstatement 14”).)
On June 1, 2017, Citigroup presented at the Bernstein 2017
Strategic Decisions Conference.

The following exchange between

a Bernstein analyst and Mr. Corbat occurred:
JOHN MCDONALD: “And just wrapping up the conversation
about efficiency, you’ve done a lot of investment spending,
you’ve done some big projects upgrading major systems in
the Investment Bank, the Global Consumer Bank, and
currently investing $1 billion in Mexico. Where are you on
kind of these big projects? Are you kind of at the tail end
of the major big projects you set upon the last couple of
years? Where are you in that cycle of spend?”
CORBAT: “From an infrastructure perspective, we’ve
got, really if not all, certainly most of the systems or
(See also CAC ¶ 374 (quoting 2017 Annual Report at 115); CAC ¶
391 (quoting 2018 Annual Report at 106); CAC ¶ 423 (quoting 2019
Annual Report at 104).)
15

13

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base systems that we need . . . . But again, we’ve spent
all the energy and effort in terms of creating these
systems that have the ability to come back and communicate
centrally.”
(CAC ¶ 353 (“Alleged Misstatement 15”).)
During Citigroups’ Investor Day conference on July 25,
2017, Mr. Corbat remarked:
When I think of Citi, the word that comes to my mind is
“pride.” I have to tell you how proud I am of the progress
we’ve made and how we’ve executed through tough decisions
in terms of our capital, our balance sheet and our business
model. We have been rebuilding our credibility, our
relationships with our regulators and, very importantly, a
culture that’s based on ethics and execution. And our
progress, it can be seen not just through the robustness of
our businesses, but also through the investments that we’ve
made in controls – to improve processes across risk,
compliance and audit – which gives us our licenses to run
and to grow our business. . . .
“I also hope people recognize how we’ve strengthened our
risk management by the dogs that haven’t barked.”16
(CAC ¶ 355(“Alleged Misstatement 16”).)
stated at the same event:

Mr. Gespach separately

“Our efficiency ratio at 59% is at, or better, than
each of our peer institutions. Our ROA remains
somewhat below the group. Our growth in tangible book
value per share is fairly comparable. We exceeded our
nearest banking peers in payout ratio at 86% and we
are poised to continue leading the way over the next
12 months with a capital return plan equal to nearly
130% of consensus income expectations. We’ve
generated these results while operating above every
one of our regulatory requirements.”
(CAC ¶ 357 ((“Alleged Misstatement 17”).)

Plaintiffs no longer challenge that this portion of this
statement is false or misleading. (Opp. Br. at 33 n.24.)
16

14

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3.

Alleged Misstatements in 2018

On January 4, 2018, The Wall Street Journal published an
article titled, “Citi Fined for Failing to Fix Money-Laundering
Controls.”

The article reported that the OCC had issued a $70

million penalty after finding that Citibank had failed to comply
with its 2012 Consent Order.

The article included the following

statement attributed to Citigroup:
“‘Citi is committed to taking all necessary and appropriate
steps to remedy the concerns identified by the OCC,’ a
spokesman said. ‘We have made substantial investments to
enhance our [anti-money-laundering] programs and we
maintain a commitment to developing an industry-leading
program to help to protect the integrity of the financial
system.’”
(CAC ¶ 359 (“Alleged Misstatement 18”).)
On February 23, 2018, Citigroup issued its 2017 Annual
Report.

In addition to the alleged misstatements identified

above, the 2017 Annual report stated that:

17

•

“Independent Compliance Risk Management (ICRM)
organization is designed to protect Citi by overseeing
senior management, the businesses, and other control
functions in managing compliance risk, as well as
promoting business conduct and activity that is
consistent with Citi’s mission and value proposition.”
(CAC ¶ 368 (“Alleged Misstatement 19”) (quoting 2017
Annual Report at 67).)17

•

“Citigroup’s Board of Directors oversees Citi’s risktaking activities and holds management accountable for
adhering to the risk governance framework. To do so,
directors review reports prepared by the businesses,
Risk, Independent Compliance Risk Management, Internal
Audit and others, and exercise sound independent

(See also CAC ¶ 385 (quoting 2018 Annual Report at 60).)
15

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judgment to question, probe and challenge
recommendations and decisions made by management.” (CAC
¶ 372 (“Alleged Misstatement 20”) (quoting 2017 Annual
Report at 69).)18
4.

Alleged Misstatements in 2019

On February 22, 2019, Citigroup issued its 2018 Annual
Report.

In addition to the alleged misstatements identified

above, the 2018 Annual report stated that:
•

“Citi’s Company-wide risk governance framework
consists of the policies, standards, procedures and
processes through which Citi identifies, assesses,
measures, manages, monitors, reports and controls
risks across the Company.” (CAC ¶ 379 (“Alleged
Misstatement 21”) (quoting 2018 Annual Report at
59).)19

•

“Citi follows the following CRM [Compliance Risk
Management] Framework process steps: Establishing,
maintaining and adhering to policies, standards and
procedures for the management of compliance risk, in
accordance with policy governance requirements;
Developing and providing training to support the
effective execution of roles and responsibilities
related to the identification, control, reporting and
escalation of matters related to compliance risks . .
. ; Independently testing and monitoring that Citi is
operating within the Compliance Risk Appetite;
Identifying instances of non-conformance with Laws,
regulations, rules and breaches of internal policies;
Escalating through the appropriate channels, which may
include governance forums, the results of monitoring,
testing, reporting or other oversight activities that
may represent a violation of law, regulation, policy
or other significant compliance risk and take
reasonable action to see that the matter is
appropriately identified, tracked and resolved,
including through the issuance of corrective action
plans against the first line of defense.” (CAC ¶ 393

(See also CAC ¶ 389 (quoting 2018 Annual Report at 62); CAC ¶
421 (quoting 2019 Annual Report at 60).)
19 (See also CAC ¶ 413 (quoting 2019 Annual Report at 58).)
18

16

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 17 of 64

(“Alleged Misstatement 22”) (quoting 2018 Annual
Report at 107-108).)20
On March 6, 2019, Citigroup filed its 2019 Proxy Statement
on Form 14A with the SEC.

The filing included a “Letter from

the Board of Directors to our Shareholders,” which stated in
part:
“Management also made progress on the regulatory front
last year, which we believe is critical to the firm’s
success. . . . In addition, Citi made headway on a
range of heightened regulatory requirements that all
large banks have faced in the wake of the financial
crisis. Nevertheless, your Board will continue to pay
close attention to – and expect management to make
continued progress on – regulatory matters in 2019 and
beyond.
As it should be for a global firm like Citi, prudent
risk management was top of mind for both management
and the Board in 2018. Our three lines of defense –the
business lines, the control functions, and internal
audit – dove deeply and, where necessary, took
proactive steps in critical risk areas . . . The Board
and our Risk Committee engage deeply in the oversight
of risk management practices in these and other areas,
always recognizing that, while Citi is in the business
of taking risk, these risks must be understood,
measured, monitored, and controlled.”
(CAC ¶ 398 (“Alleged Misstatement 23”).)
On March 19, 2019, Citigroup issued a press release titled
“Citi Resolves Regulatory Review of Mortgage Program
Implementation” in response to reports of a $25 million fine
imposed on Citibank for violations of the Fair Housing Act.

In

the press release, Citibank stated that it had conducted a

20

(See also CAC ¶ 425 (quoting 2019 Annual Report at 105-106).)
17

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“comprehensive” review and “[s]trengthened processes and
controls to help ensure correct implementation going forward.”
(CAC ¶ 400 (“Alleged Misstatement 24”).)
On July 15, 2019, at Citigroup’s earnings call for the
Second Quarter of 2019, Mr. Corbat stated:

“we won’t change our

commitment to safety and soundness and to making investments
necessary to strengthen our infrastructure and control
environment.”

(CAC ¶ 402 (“Alleged Misstatement 25”).)

During

that same call, Mr. Mason stated that:
“[l]ooking ahead, we will maintain this expense discipline
relative to the revenue environment while continuing to
make essential investments in the franchise, including
investments in infrastructure and controls, but we do
expect expenses to be lower on a sequential basis from the
first half to the second half of the year.”
(CAC ¶ 402 (“Alleged Misstatement 26”).)
On September 9, 2019, Mr. Mason presented at the Barclays
Global Financial Services Conference, at which Mr. Mason said:
“[O]ne thing that I want to reiterate is that we cannot
compromise investing in core parts of our franchise that
allow for us to have a competitive advantage. . . . [W]e
can’t compromise the investments that are required in our
infrastructure and in our controls to ensure safety and
soundness.”
(CAC ¶ 404 (“Alleged Misstatement 27”).)
On October 11, 2019, following the OCC’s $30 million fine
issued to Citibank for “deficient process and controls” related
to violations of real estate holding rules, Citi released a
statement published in media reports (including Reuters)
18

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 19 of 64

stating: “[s]ince identifying the issue, we have strengthened
controls, processes and procedures to ensure the timely
disposition of these assets.”

(CAC ¶ 406 (“Alleged Misstatement

28”).)
On October 15, 2019, Citigroup held its earnings call for
the Third Quarter of 2019.
that:

On that call, Mr. Corbat stated

“we remain committed to investing in the products in

which we see the best growth opportunities as well as in our own
infrastructure for the purpose of safety and soundness.”

(CAC

¶ 408 (“Alleged Misstatement 29”).)
5.

Alleged Misstatements in 2020

On January 21, 2020, American Banker published an article
titled “Citibank Fined Nearly $18 Million For Flood Insurance
Violations,” which stated that “a Citi spokesman said the
company was ‘pleased to have the matter resolved.’”

(CAC ¶ 410

(“Alleged Misstatement 30”).)
On February 21, 2020, Citigroup issued its 2019 Annual
Report.

In addition to the alleged misstatements identified

above, the 2019 Annual report stated that:
•

“Independent Compliance Risk Management organization
is an independent risk management function that is
designed to oversee and credibly challenge products,
functions, jurisdictional activities and legal
entities in managing compliance risk, as well as
promoting business conduct and activity that is
consistent with Citi’s mission and value proposition
and the compliance risk appetite.” (CAC ¶ 417

19

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(“Alleged Misstatement 31”) (quoting 2019 Annual
Report at 59).)
•

“The role of Internal Audit is to provide independent
and timely assurance to the Citigroup and Citibank
Boards, the Audit Committees of the Boards, senior
management and regulators regarding the effectiveness
of governance, risk management and controls that
mitigate current and evolving risks and enhance the
control culture within Citi.” (CAC ¶ 419 (“Alleged
Misstatement 32”) (quoting 2019 Annual Report at 60).)

On April 15, 2020, Citigroup reported earnings for the
First Quarter of 2020 and posted a presentation to the Company’s
website titled “First Quarter 2020 Earnings Review,” stating
that “[d]espite a challenging environment, [Citigroup] delivered
. . . strong risk management” and that Citigroup’s “Priorities”
were to “[f]ocus on risk management and building a stronger
company for the future.”

(CAC ¶ 429 (“Alleged Misstatement

33”).)
On September 10, 2020, Citigroup issued a press release
titled “Citi CEO Michael Corbat Announces Plans to Retire in
February 2021” in which Mr. Corbat said:
“We completed our transformation from the financial crisis
and emerged a simpler, safer and stronger
institution. . . . As the world’s most global bank, safety
and soundness always have to be a foundation of our
institution. We have launched significant investments in
our infrastructure as part of our push to make
strengthening our risk and control environment a strategic
priority for the firm.”
(CAC ¶ 431 (“Alleged Misstatement 34”).)

20

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6.

Alleged Accounting and Regulatory False
Statements and Omissions

Beyond the alleged false statements identified above,
Plaintiffs also assert that Citigroup engaged in accounting
fraud by violating the Generally Accepted Accounting Principles
(“GAAP”).

(Id. ¶ 435.)

The CAC alleges that, over the course

of the Class Period, Citigroup should have spent between $3.66
billion and $4.1 billion in order to comply with its risk
management obligations and that it should have known that this
loss was probable but nonetheless failed to include this alleged
“loss contingency” in its filings.

(Id. ¶ 447-50.)

Plaintiffs

further claim that Citigroup violated Item 303 of Regulation SK, which establishes an affirmative duty on a reporting entity
to describe “any known trends or uncertainties that have had or
that are reasonably likely to have a material favorable or
unfavorable impact on net sales or revenues or income from
continuing operations,” as it failed to disclose the extent of
its alleged underinvestment in its risk and control systems and
the impact that fixing those systems would have on Citigroup’s
income.

(Id. ¶¶ 455, 459.)

Finally, Plaintiffs allege that

Citigroup falsely represented that its internal controls over
financial reporting (“ICFR”) and disclosure controls and
procedures (“DCP”) were effective.

21

(Id. ¶¶ 488-90, 518-19.)

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 22 of 64

7.

The October 2020 Orders and Other Alleged
Regulatory Action

The CAC alleges that federal regulators repeatedly
pressured Mr. Corbat and the Citigroup Board to address
longstanding deficiencies in Citigroup’s risk systems and
internal controls throughout the Class Period.
¶ 237.)

(Id.

Pursuant to both of their guidelines, the Fed and the

OCC must submit regular reports to Citigroup summarizing any
deficiencies that it has found based on outstanding Matters
Requiring Immediate Attention (“MRIA”) and Matters Requiring
Attention (“MRA”).

(Id. ¶¶ 66-68, 79.)

The Fed requires the

Citigroup Board to respond in “writing detailing corrective
action taken or planned.”

(Id. ¶ 69.)

The OCC submits a Report

of Examination (“ROE”) to the Citigroup Board and requires that
all directors sign it to indicate that they have personally
reviewed it.

(Id. ¶ 79.)

Beyond the formal reports, the Fed

and OCC met with Mr. Corbat and the Citigroup and Citibank
Boards numerous times throughout the Class Period.

(Id. ¶ 253.)

Based on the foregoing, Plaintiffs infer that the Fed and OCC
“consistently alerted” Mr. Corbat and the Citigroup and Citibank
Board “to Citigroup’s longstanding deficiencies, noncompliance,
or unsafe or unsound practices” (id. ¶ 253), but do not identify
what specific matters were contained in the ROEs or what the Fed

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Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 23 of 64

or OCC discussed with Corbat and the Citigroup and Citibank
Boards.
In October 2020 Citibank entered into consent orders with
the OCC and the Fed.

The Fed found that Citigroup had “not

adequately remediated the longstanding enterprise-wide risk
management and control deficiencies previously identified by the
Federal Reserve,” including deficiencies that dated back to
2013.

(Id. ¶ 163.)

The OCC similarly found that Citibank had

“longstanding deficiencies and unsafe or unsound practices in
the areas of risk management, [and] internal controls,” and that
“[f]or several years” Citibank “failed to implement and maintain
an enterprise wide risk management and compliance risk
management program . . . commensurate with the Bank’s size,
complexity, and risk profile.”

(Id. ¶ 270.)

The OCC concluded

that Citibank engaged in “a pattern of misconduct” and
“continuous noncompliance” and issued a civil monetary penalty
(“CMP”) along with one of its October 2020 Orders.

(Id. ¶¶ 182-

83, 220.)
II.

Procedural History
The original putative class action complaint was filed on

October 30, 2020, by The City of Sunrise Firefighters’ Pension
Fund against Citigroup and the Officer Defendants.
1.)

(Dkt. No.

Two separate putative class actions subsequently were filed

by two other institutional investors.
23

(See City of Sterling

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 24 of 64

Heights General Employees’ Retirement System v. Citigroup, et
al., No. 20-cv-9573; Lim v. Citigroup, et al., No. 20-cv-10360.)
After certain parties moved to consolidate and to be appointed
lead plaintiff, the plaintiff in City of Sterling Heights
voluntarily dismissed its claims without prejudice, maintaining
its right to participate in the case as an absent class member.
(Dkt. no. 64 in 20-cv-9573.)

On February 4, 2021, the Court

consolidated the remaining actions—City of Sunrise and Lim—
styled as In re Citigroup Securities Litigation, and the Court
appointed Public Sector Pension as lead plaintiff.

(Dkt. no.

66.).
A consolidated amended complaint was filed on April 20,
2021.

As discussed, there are three classes of defendants in

the CAC:

(i) the corporate defendant Citigroup; (ii) the

Officer Defendants Michael L. Corbat, John C. Gerspach, and
Michael A. L. Mason; and (iii) the Director Defendants.
III. Legal Standards
A. Fed. R. Civ. P. 12(b)(6), Fed. R. Civ. P. 9(b), & the
Private Securities Litigation Reform Act (“PSLRA”)
To survive a Rule 12(b)(6) motion to dismiss, Plaintiff
must plead sufficient facts “to state a claim to relief that is
plausible on its face.”
544, 570 (2007).

Bell Atl. Corp. v. Twombly, 550 U.S.

“A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw

24

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 25 of 64

the reasonable inference that the defendant is liable for the
misconduct alleged.”
(2009).

Ashcroft v. Iqbal, 556 U.S. 662, 678

That “standard is not akin to a ‘probability

requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”
F.3d 804, 810 (2d Cir. 2019).

Palin v. N.Y. Times Co., 940

Evaluating “whether a complaint

states a plausible claim for relief” is “a context-specific task
that requires the reviewing court to draw on its judicial
experience and common sense.”

Iqbal, 556 U.S. at 679.

When considering a motion to dismiss, the Court “accept[s]
as true all factual allegations and draw[s] from them all
reasonable inferences.”

Dane v. UnitedHealthcare Ins. Co., 974

F.3d 183, 188 (2d Cir. 2020).

It is not required, however, “to

credit conclusory allegations or legal conclusions couched as
factual allegations.”

Id. (ellipsis omitted).

“Accordingly,

threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014) (cleaned up).
“While legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations.”
Iqbal, 556 U.S. at 679.
“A claim under Section 10(b) . . . sounds in fraud and must
[also] meet the pleading requirements of Rule 9(b) of the
Federal Rules of Civil Procedure and of the PSLRA.”
25

Plumbers &

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 26 of 64

Pipefitters Nat. Pension Fund v. Orthofix Int’l N.V., 89 F.
Supp. 3d 602, 607 (S.D.N.Y. 2015) (citation omitted).

Under

Rule 9(b) and the PSLRA, the complaint must (i) “specify the
statements that the plaintiff contends were fraudulent,” (ii)
“identify the speaker,” (iii) “state where and when the
statements were made, and” (iv) “explain why the statements were
fraudulent.”

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d

87, 99 (2d Cir. 2007); accord 15 U.S.C. § 78u–4(b)(1)(B).
B. Section 10(b) & Rule 10b-5
To state a claim under Section 10(b) and Rule 10b-5, a
plaintiff must plead six elements: (i) “a material
misrepresentation or omission by the defendant;” (ii)
“scienter;” (iii) “a connection between the misrepresentation or
omission and the purchase or sale of a security;” (iv) “reliance
upon the misrepresentation or omission;” (v) “economic loss;
and” (vi) “loss causation.”

Halliburton Co. v. Erica P. John

Fund, Inc., 573 U.S. 258, 267 (2014).

The first and second are

particularly relevant to this litigation.
1. Material Misrepresentations or Omissions
“To support a claim of securities fraud, the stated or
omitted fact must be material.”

Constr. Laborers Pension Tr.

for S. Cal. v. CBS Corp., 433 F. Supp. 3d 515, 531 (S.D.N.Y.
2020).

“An alleged misrepresentation is material if there is a

substantial likelihood that a reasonable person would consider
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it important in deciding whether to buy or sell shares of
stock.”

Singh v. Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019)

(quotation marks omitted).

“In judging whether an alleged

omission was material in light of the information already
disclosed to investors, the [C]ourt considers whether there is a
substantial likelihood that the disclosure of the omitted
material would have been viewed by the reasonable investor as
having significantly altered the total mix of information
already made available.”

Chapman v. Mueller Water Prods., Inc.,

466 F. Supp. 3d 382, 396–97 (S.D.N.Y. 2020) (cleaned up).
“Certain categories of statements are immaterial as a
matter of law, such as ‘puffery,’ opinions, and forward-looking
statements accompanied by adequate cautionary language.”
Barilli v. Sky Solar Holdings, Ltd., 389 F. Supp. 3d 232, 250
(S.D.N.Y. 2019).

“Puffery encompasses statements that are too

general to cause a reasonable investor to rely upon them,” In re
Vivendi, S.A. Sec. Litig., 838 F.3d 223, 245 (2d Cir. 2016)
(cleaned up), such “as a company's statements of hope, opinion,
or belief about its future performance,” Steamfitters Loc. 449
Pension Plan v. Skechers U.S.A., Inc., 412 F. Supp. 3d 353, 363
(S.D.N.Y. 2019), aff’d, 826 F. App’x 111 (2d Cir. 2020).
Likewise, “a sincere statement of pure opinion is not an untrue
statement of material fact, regardless [of] whether an investor
can ultimately prove the belief wrong.”
27

Omnicare, Inc. v.

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 28 of 64

Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175,
186 (2015) (quotation marks omitted).

In that vein, “the Court

of Appeals has repeatedly held to be nonactionable expressions
of corporate optimism.”

In re Bristol-Myers Squibb Sec. Litig.,

312 F. Supp. 2d 549, 557 (S.D.N.Y. 2004).
In addition to materiality, “[a]n alleged statement or
omission must also be false or misleading.”
433 F. Supp. 3d at 531.

Constr. Laborers,

“The test for whether a statement is

materially misleading . . . is not whether the statement is
misleading in and of itself, but whether the defendants’
representations, taken together and in context, would have
misled a reasonable investor.”
(quotation marks omitted).

Vivendi, 838 F.3d at 250

In other words, whether a statement

is “misleading,” is “evaluated not only by literal truth, but by
context and manner of presentation.”
(cleaned up).
false:

Singh, 918 F.3d at 63

Critically, a statement must be contemporaneously

“A statement believed to be true when made, but later

shown to be false, is insufficient.”

In re Lululemon Sec.

Litig., 14 F. Supp. 3d 553, 571 (S.D.N.Y. 2014).

To establish

the falsity of an opinion, a plaintiff must plead that (i) “the
speaker did not hold the belief she professed,” (ii) any
“supporting fact[s] she supplied” with her opinion “were
untrue,” or (iii) the speaker omitted facts whose omission makes
the statement misleading to a reasonable investor.
28

Omnicare,

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 29 of 64

575 U.S. at 186; see also Tongue v. Sanofi, 816 F.3d 199, 209-10
(2d Cir. 2016) (applying Omnicare to claims brought under
Section 10(b) and Rule 10b-5).
Moreover, “an omission is actionable under the securities
laws only when the corporation is subject to a duty to disclose
the omitted facts.”

Stratte-McClure v. Morgan Stanley, 776 F.3d

94, 101 (2d Cir. 2015).

Section “10(b) and Rule 10b–5(b) do

not,” however, “create an affirmative duty to disclose any and
all material information”:

“Disclosure is required . . . only

when necessary to make statements made, in the light of the
circumstances under which they were made, not misleading.”
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011)
(cleaned up).

“This inquiry, unlike other duty-to-disclose

scenarios, merges with the question of whether the omitted fact
is material.”

Constr. Laborers, 433 F. Supp. 3d at 531.

2. Scienter
Claims under Section 10(b) and Rule 10b-5 must allege “that
the defendant acted with scienter, a mental state embracing
intent to deceive, manipulate, or defraud.”

Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007) (quotation
marks omitted).

The PSLRA mandates that a complaint “state with

particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.”
§ 78u–4(b)(2)(A).

15 U.S.C.

Under that standard, “[a] complaint will
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Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 30 of 64

survive . . . only if a reasonable person would deem the
inference of scienter cogent and at least as compelling as any
opposing inference one could draw from the facts alleged.”
Tellabs, 551 U.S. at 324.

That necessary inference of scienter,

taking “into account plausible opposing inferences,” “must be
more than merely ‘reasonable’ or ‘permissible’—it must be cogent
and compelling, thus strong in light of other explanations.”
Id. at 323-24.
For an individual, “the scienter requirement is met where
the complaint alleges facts showing either: 1) a motive and
opportunity to commit the fraud; or 2) strong circumstantial
evidence of conscious misbehavior or recklessness.”

Emps.’ Ret.

Sys. of Gov’t of the Virgin Is. v. Blanford, 794 F.3d 297, 306
(2d Cir. 2015) (quotation marks omitted).

A generalized motive,

like the desire to maintain the appearance of corporate
profitability or increase compensation, is insufficient.
v. GE, 101 F.3d 263, 268 (2d Cir. 1996).

Chill

“Where motive is not

apparent[,] the strength of the circumstantial allegations must
be correspondingly greater.”

Schiro v. Cemex, S.A.B. de C.V.,

396 F. Supp. 3d 283, 300 (S.D.N.Y. 2019).

For corporations,

“the pleaded facts must create a strong inference that someone
whose intent could be imputed to the corporation acted with the
requisite scienter.”

Teamsters Loc. 445 Freight Div. Pension

Fund v. Dynex Cap. Inc., 531 F.3d 190, 195 (2d Cir. 2008).
30

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C. Section 20(a)
Section 20(a) of the Exchange Act provides for what is
commonly known as “control person” liability:
Every person who, directly or indirectly,
controls any person liable under any
provision of [the Exchange Act] or of any
rule or regulation thereunder shall also be
liable jointly and severally with and to the
same extent as such controlled person to any
person to whom such controlled person is
liable . . . .
15 U.S.C. § 78t(a).

“To establish a prima facie case of control

person liability, a plaintiff must show (1) a primary violation
by the controlled person, (2) control of the primary violator by
the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled
person’s fraud.”
IV.

ATSI, 493 F.3d at 108.

Discussion
The Complaint brings two securities fraud claims:

Count I

alleges a violation of Rule 10b-5 against Citigroup and the
Individual Defendants, and Count II alleges a Section 20(a)
violation against the Officer Defendants as control persons.
Defendants argue that the CAC should be dismissed because
it:

(i) fails to identify any actionable misstatements or

omissions and (ii) does not plead a strong inference of
scienter.

The Court agrees.

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A.

Whether the Challenged Statements Contain Actionable
Misrepresentations or Omissions

Defendants argue that all of the alleged misstatements and
omissions fall into one of two buckets that make them nonactionable:

(i) statements that are immaterial as a matter of

law and (ii) statements that were not false when spoken and were
not rendered false by the 2020 Consent Orders.

The Court again

agrees.
1.

Alleged Misrepresentations and Omissions

Plaintiffs identify approximately sixty statements as
actionable.

These statements can be broken down into four rough

categories:

(i) Statements Regarding Investments in Risk

Management and the Design and Functioning of Citigroup’s Risk
Management System (Alleged Misstatements 1-7, 10-14, 19-22, 2527, 29, 31-32, and 34); (ii) Statements Regarding Regulatory
Compliance and Progress (Alleged Misstatements 9, 15-18, 23-24,
28, 30, and 33); (iii) Risk Warnings (Alleged Misstatement 8);
and (iv) Alleged Accounting and Regulatory False Statements and
Omissions.

The Court addresses each family of statements in

turn.
i.

Statements Regarding Investments in Risk
Management and the Design and Functioning of
Citigroup’s Risk Management System

Nearly every statement in this category is immaterial.
Plaintiffs assert that Citigroup made “meticulously detailed”
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representations regarding its investments in and design of risk
management and internal controls that “gave comfort” to
investors.

(Opp. Br. at 3, 32.)

But Plaintiffs’ “meticulously

detailed” characterization does not withstand scrutiny.

In

reality, the CAC strings together what are mostly routine,
generic, and vague statements regarding Citigroup’s investments
and risk management policies and procedures, several of them
forward-looking, that Plaintiffs have plucked from various
communications across four years and attempted to transform from
general to specific by grouping them together.

The following

examples are representative:
•

Citigroup made “sustainable” “necessary,” “essential,”
and “significant” investments in risk, control, and
compliance. (CAC ¶ 310, 312, 402, 431.)

•

Citigroup was and would remain “commit[ted]” to making
the necessary investments in these areas and would not
“compromise” on this important area. (Id. ¶¶ 402,
404, 408, 431.)

•

Citigroup “manages its risks” through “three lines of
defense [that] collaborate with each other in
structured forums and processes to bring various
perspectives together and to steer the organization
toward outcomes that . . . are systemically
responsible.” (CAC ¶¶ 315, 337, 366, 383, 415.)

•

Citigroup’s “compliance organization is designed to
protect Citi . . . by managing adherence to applicable
laws [and] regulations.” (CAC ¶¶ 317, 339.)

•

“Citi’s firm-wide Risk Governance Framework consists
of the policies, procedures, and processes through
which Citi identifies, measures, manages, monitors,

33

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 34 of 64

reports, and controls risks across the firm.”
333, 362.)
•

(CAC ¶¶

“Citi’s Company-wide risk governance framework
consists of the policies, standards, procedures and
processes through which Citi identifies, assesses,
measures, manages, monitors, reports and controls
risks across the Company.” (CAC ¶¶ 379, 413.)

The statements regarding investments and commitments are
nothing more than “simple and generic assertions” regarding
Citigroup’s “commitment to regulatory compliance” and intention
“to allocate significant resources” to said compliance.

Singh

v. Cigna Corp., 918 F.3d 57, 64 (2d Cir. 2019) (cleaned up).
Such statements are not materially misleading absent
significantly more detailed “assurances of actual compliance.”
Id. at 64 (cleaned up).

Though Citigroup generally stated that

it was spending the appropriate amount on these issues and would
continue to do so, there is insufficient detail in any of the
identified statements to be construed as an “assurance of actual
compliance” or that the investments would forestall regulatory
action in perpetuity.

No bank would declare that it was not

investing in and would not continue to invest in regulatory
compliance or risk management.

No reasonable investor would

rely on such vague statements, lacking any meaningful detail,
that it was doing so as an assurance of compliance.

ECA & Local

134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553
F.3d 187, 206 (2d Cir. 2009) (“No investor would take such

34

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 35 of 64

[general] statements seriously in assessing a potential
investment, for the simple fact that almost every . . . bank
makes these statements.”).
The descriptions of Citigroup’s risk management “policies
and procedures” are equally “simple and generic.”
F.3d at 64.

Singh, 918

Plaintiffs identify general statements about how

Citigroup “manages its risks,” (CAC ¶¶ 315, 337, 366, 383, 415)
that it has systems “designed to protect Citi” (CAC ¶¶ 317, 339,
368, 385) and “policies, procedures, and processes” to control
risk (CAC ¶¶ 333, 362), and a “risk governance framework” that
consists of “policies, standards, procedures, and processes.”
(CAC ¶¶ 379, 413).

But these are exactly the types of “routine

representations” of “risk-management practices” that “almost
every . . . bank makes” and which are inactionable.

ECA, 553

F.3d at 206; Menaldi v. Och-Ziff Capital Mgmt. Grp. LLC, 277 F.
Supp. 3d 500, 513 (S.D.N.Y. 2017) (finding inactionable similar
“milquetoast corporate-speak”).

Such “[v]ague positive

statements regarding” Citigroup’s “risk management strategy”
“are ‘too general to cause a reasonable investor to rely upon
them’ and therefore are ‘precisely the type of puffery that this
and other circuits have consistently held to be inactionable.’”
Stichting Depositary APG Developed Mkts. Equity Pool v.
Synchrony Fin. (In re Synchrony Fin. Sec. Litig.), 988 F.3d 157,
170 (2d Cir. 2021) (quoting ECA, 553 F.3d at 206); Greco v.
35

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Qudian Inc., No. 1:20-cv-577-GHW, 2022 U.S. Dist. LEXIS 165369,
at *41 (S.D.N.Y. Sept. 13, 2022) (finding “general statements
regarding . . . attempts to remain compliant with regulations”
that did not assert full “complian[ce] with all regulations, or
that” the company “has never faced regulatory issues” were “nonactionable puffery”).
The closest Plaintiffs come to identifying a statement with
the requisite level of detail is Citigroup’s statement that
“[t]he Risk Governance Framework has been developed in alignment
with the expectations of the Office of the Comptroller of the
Currency (OCC) Heightened Standards.

It is also aligned with

the relevant components . . . of the Federal Reserve’s Enhanced
Prudential Standards for Bank Holding Companies and Foreign
Banking Organizations.”

(CAC ¶¶ 335, 364, 381; Opp. Br. at 31.)

But even references to “alignment” with specifically identified
standards are not guarantees of conformity and are too general
and aspirational to be actionable.

See, e.g., In re Sanofi Sec.

Litig., 155 F. Supp. 3d 386, 401-02 (S.D.N.Y. 2016) (finding
similar statements regarding “maintenance of an ‘effective
compliance organization’” that is “consistent with the
legislative framework,” and “aligned with the industry’s best
practices” not actionable); Banco Safra S.A.-Cayman Islands
Branch v. Andrade Gutierrez Int’l S.A., No. 16-CV-9997 (JMF),
2018 WL 1276847, at *4 (S.D.N.Y. Mar. 8, 2018) (finding
36

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 37 of 64

“statement that [company] ‘aligns its corporate practices to
standards issued by international entities,’” was “both ‘too
general’ and too ‘aspirational’ to support a securities-fraud
claim”).
Meyer v. Jinkosolar Holdings Co., 761 F.3d 245 (2d Cir.
2014), which Plaintiffs rely on to frame their theory of the
case, is not to the contrary.

The alleged misstatements in

Jinkosolar were significantly more specific than those at issue
here.

There, the defendant stated that, as part of its

environmental compliance program, it had “installed pollution
abatement equipment at [its] facilities to process, reduce,
treat, and where feasible, recycle the waste materials before
disposal” and that it had “environmental teams at each of [its]
manufacturing facilities” on duty twenty-four hours a day “to
monitor waste treatment and ensure that [these] waste emissions
comply with [Chinese law].”
original).

Id. at 247 (third alteration in

These statements were actionable misrepresentations

because “the description of pollution-preventing equipment and
24-hour monitoring teams gave comfort to investors that
reasonably effective steps were being taken to comply with
applicable environmental regulations,” comfort which would
mislead investors “if in fact the equipment and 24—hour team
were then failing to prevent substantial violations of the
Chinese regulations,” as was alleged to be the case.
37

Id. at

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 38 of 64

251.

The specificity of the disclosures in Jinkosolar made them

actionable.

That “specificity . . . is not present here.”

Diehl v. Omega Protein Corp., 339 F. Supp. 3d 153, 163 (S.D.N.Y.
2018) (same); Menaldi, 277 F. Supp. 3d at 513 (distinguishing
Jinkosolar on the basis that the statements at issue were “far
more generalized” than those in Jinkosolar).
The Court’s conclusion is buttressed by the repeated and
specific cautions that Citigroup provided in its Annual Reports.
For example, Citigroup cautioned that it and Citibank were under
“heightened regulatory scrutiny and expectations” from the
Federal Reserve, OCC, and other regulators, and that part of
that scrutiny involved monitoring of Citigroup’s and Citibank’s
“governance and risk management practices.”
Decls. at 62.)21

(Ex. 4, Nelles

Citigroup further cautioned that, “[a]t any

given time, Citi is defending a significant number of legal and
regulatory proceedings and is subject to numerous governmental
and regulatory examinations, investigations and other
inquiries.”

(Ex. 7, Nelles Decls. at 61.)

Citigroup also

It is proper for the Court to take judicial notice of
documents which are quoted and referred to by the CAC—and “to
consider them in adjudicating the Motion to Dismiss, examining
the documents only to determine what statements they contain
rather than to prove the truth of the documents’ contents.”
Frankfurt-Tr. Inv. Lux. AG v. United Techs. Corp., 336 F. Supp.
3d 196, 205 (S.D.N.Y. 2018).
21

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warned investors that these proceedings “may result in adverse
judgments, settlements, fines, penalties, restitution,
disgorgement, injunctions or other relief” (Ex. 12, Nelles
Decls. at 283), and that “Citi can be subject to enforcement
proceedings not only because of violations of law and
regulation, but also due to a failure, as determined by its
regulators, to have adequate policies and procedures, or to
remedy deficiencies on a timely basis” (Ex. 21, Nelles Decls. at
55).

These warnings cautioned investors that regulators could

disagree with the Company’s policies and procedures and defeat
any assertion that Defendants made “specific, confident
assurances of compliance” that that would give reasonable
investors the comfort Plaintiffs claim.

In re Qudian Inc. Sec.

Litig., 2020 WL 3893294, at *3 (S.D.N.Y. July 10, 2020).

Based

on the foregoing, the Court finds that Alleged Misstatements 17, 11-13, 19-22, 25-27, 29, 31-32, and 34 are immaterial.
Even if the Alleged Misstatements identified above were
not immaterial, Plaintiffs have failed to allege the falsity of
any of the statements in this category.

“A violation of Rule

10b-5 cannot occur unless an alleged material misrepresentation
or omission was false at the time it was made.”

C.D.T.S. v. UBS

AG, 2013 WL 6576031, at *3 (S.D.N.Y. Dec. 13, 2013) (“Without
contemporaneous falsity there is no fraud.”).
may not plead fraud by hindsight.”
39

And “plaintiffs

Slayton v. Am. Exp. Co., 604

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 40 of 64

F.3d 758, 776 (2d Cir. 2010) (citing Shields v. Citytrust
Bancorp, Inc., 25 F.3d 1124, 1129 (2d. Cir. 1994)).

That is,

“[c]orporate officials need not be clairvoyant; they are only
responsible for revealing those material facts reasonably
available to them.

Thus, allegations that defendants should

have anticipated future events and made certain disclosures
earlier than they actually did do not suffice to make out a
claim of securities fraud.”
2000) (citations omitted).

Novak, 216 F.3d 300, 309 (2d Cir.
Critically, “a corporation is not

required to disclose a fact merely because a reasonable investor
would very much like to know that fact.”

Dalberth v. Xerox

Corp., 766 F.3d 172, 183 (2d Cir. 2014).

Rather, a company is

only obligated to disclose additional facts if doing so was
necessary to make their statements “not misleading.”

Matrixx,

563 U.S. at 44.
Plaintiffs argue that statements related to Citigroup’s
investments in risk compliance (CAC ¶¶ 310, 312, 402, 431), its
commitment to this area (id. ¶¶ 402, 404, 408, 431), and its
statements that risk and compliance costs were “plateauing” or
had “plateaued” (id. ¶¶ 329, 351) were materially false and
misleading because the October 2020 Orders concluded that
Citigroup had failed to implement a sound system of internal
controls and risk management (CAC ¶¶ 311, 313) and thus,
Plaintiffs conclude, the “necessary,” “essential,”
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“significant,” etc. investments were not made and the risk
managements costs only plateaued because Citigroup was not
making those investments (Opp. Br. at 33-34).

Plaintiffs allege

that at the time of the October 2020 Orders, Citigroup’s
compliance issues had been ongoing “[f]or years” and were “long
past due”

(CAC ¶¶ 153-54, 158; see Opp. Br. at 9) and cite

facts suggesting that at unidentified points in time, Citigroup
was aware that its regulators considered unspecified aspects of
Citigroup’s risk management systems to require modification,
that the OCC and Fed subsequently issued the October 2020 Orders
finding that Citigroup’s risk management system as it stood in
2020 was insufficient and required remediation, and that
compliance with the 2020 Orders would be costly.

(CAC ¶¶ 119,

159, 213, 311(a)(v), (c), 313, 403(c)(e)(f), 405(b)-(e), 409(a),
(d)-(f).)
However, nowhere in the Complaint do Plaintiffs allege
facts showing that Citigroup did not, in fact, make the
described investments in risk, control, and compliance as of the
time the above statements were made.

See In re Banco Bradesco

S.A. Sec. Litig., 277 F. Supp. 3d 600, 648 (S.D.N.Y. 2017)
(“Plaintiff has not alleged that . . . management did not, in
fact, conduct the evaluations described in those statements.”).
To be sure, Plaintiffs conclude that Citigroup did not make the
described investments by reasoning backward from the existence
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of the October 2020 Orders and positing that the existence of
the regulatory actions in 2020 shows that Citigroup never made
the requisite investment in its risk management systems at any
point over the preceding four years.

(See, e.g., CAC ¶ 313(a)

(“The ‘necessary investments,’ at a minimum, had to be
sufficient to avoid the findings in Article II of the OCC
Remediation Order . . . .”).)

But setting aside the conclusions

and looking to the actual factual allegations, the fact that
Defendants were subject to the October 2020 Orders, whether due
to lack of investment or for other reasons, does not mean that
Citigroup was not investing in its risk management system at the
times the challenged statements were made or that the
investments were inadequate at that time.

See, e.g., Woolgar v.

Kingstone Cos., 477 F. Supp. 3d 193, 230 (S.D.N.Y. 2020)
(“Plaintiff has failed to allege how Defendants’ knowledge of a
material weakness as of September 30, 2019 . . . demonstrates
that any Defendant was aware of a weakness during the Class
Period.”).
As to the risk management systems, Plaintiffs do not argue
that the CAC adequately alleges that the designs and procedures
Defendants described did not exist or were misdescribed.
Br. at 27, 30.)

(Opp.

Rather, Plaintiffs argue that these statements

were misleading because Citigroup failed to disclose that
“regulators had determined for years that those systems suffered
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significant deficiencies” such that they were, in Plaintiffs’
words, “inoperable,” and that describing these systems at all
“created a misleading impression because they did not meet
minimum regulatory requirements.”
CAC ¶¶ 163-64, 176-83).)

(Opp. Br. at 27, 30 (citing

In support of this argument,

Plaintiffs again attempt to use the October 2020 Orders to carry
a weight they will not bear.

For example, though the Fed Order

did identify “significant ongoing deficiencies” in “various
areas of risk management and internal controls,” it states that
those deficiencies were observed in the “most recent supervisory
assessment of Citigroup.”

(Ex. 24, Nelles Decl. at 1.)

Similarly, the Fed’s reference to “longstanding enterprise-wide
risk management and controls deficiencies previously identified”
(id. at 2) does not support the contention that Citigroup’s risk
management systems were inoperable throughout the Class Period,
much less establish that any of the Defendants knew that
Citigroup’s risk management systems were so deficient that any
reference to or description of them was misleading.
Similarly, the OCC’s conclusion in 2020 that “for several
years, the Bank has failed to implement and maintain an
enterprise-wide risk management and compliance risk management
program, internal controls, or a data governance program
commensurate with the Bank’s size, complexity, and risk profile”
and engaged in “unsafe or unsound practices that were part of a
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pattern of misconduct” and “violations of law and regulation and
continuous noncompliance” with OCC regulations, (Ex. 25, Nelles
Decls. at Art. II; see also Opp. Br. at 2, 29) does not tell the
Court when this view was formed or communicated to any
Defendant.
Nor is the Court persuaded that the existence of a
regulatory system by which regulators communicate multifarious
inadequacies to large banks like Citigroup, the occurrence of
various meetings between regulators and Citigroup, or the fact
that the OCC and Fed consent orders contain language suggesting
that certain deficiencies persisted over an unspecified period
of time, (CAC ¶¶ 66-68, 79, 163, 182-83, 220, 253, and 270), can
stand in for particularized factual allegations raising an
inference that the specific challenged statements were
misleading by omission when made.

The CAC never identifies what

specific matters were contained in the ROEs or what the Fed or
OCC discussed with Mr. Corbat and the Citigroup and Citibank
Boards such that the Court can infer that, at the time the
challenged statements were made, there was further information
pertinent to those statements that Citigroup had a duty to
disclose, such as a contemporaneous communication from the
regulators stating that Citigroup’s investments in risk
management were inadequate or informing Citigroup that its risk
management systems were functionally nonexistent.
44

Teamsters,

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 45 of 64

531 F.3d at 196 (no inference of fraud where plaintiff failed to
“identif[y] any reports or statements that would have . . .
demonstrated the falsity of the allegedly misleading
statements”); Woolgar, 477 F. Supp. 3d at 232 (S.D.N.Y. 2020)
(claims dismissed where the complaint “d[id] not set forth
specific, contradictory information of which Defendants were
aware”).

Indeed, Plaintiffs do not identify the date of any

particular communication or, even generally, that in a
particular year the OCC and Fed conveyed a particular concern to
Defendants.

The Court is cognizant that Plaintiffs “need not

plead dates, times, and places with absolute precision,” In re
Flag Telecom. Ltd., Sec. Litig., 352 F.Supp.2d 429, 467
(S.D.N.Y. 2005), but the CAC contains no precision.

The Court

cannot infer that Citigroup should have disclosed more
information on a specific topic at a particular time without
factual allegations identifying with some level of specificity
what contradictory information Citigroup had and when it had it.
The Court therefore concludes that Alleged Misstatements 17, 10-14, 19-22, 25-27, 29, 31-32, and 34 are not actionable
because Plaintiffs have not adequately alleged that the
statements were false at the time they were made or identified
any specific information available to the Defendants at the time
the statements were made that should have been disclosed
contemporaneously but was not.

San Leandro Emergency Med. Group
45

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Profit Sharing Plan v. Philip Morris Cos., Inc., 75 F.3d 801,
812–13 (2d Cir. 1996) (finding no inference of fraud where
plaintiff failed to articulate contemporaneous facts that were
inconsistent with defendants' public statements).
ii.

Statements Regarding Regulatory Compliance and
Progress

The statements in this category are more disparate but no
less inadequate.
and 17 first.

The Court addresses Alleged Misstatements 15

When read in the context in which they were made,

neither of these statements has anything to do with risk
management systems, and they are not adequately alleged to be
false.

Alleged Misstatement 15, that “[f]rom an infrastructure

perspective [Citigroup] got really if not all, certainly most of
the systems or base systems” that it needed was made in response
to a question about systems, in 2017, related to “big projects”
in the “Investment Bank, the Global Consumer Bank” and
investments in Mexico designed to improve “efficiency,” such as
more technologically advanced ATMs.
3.)

(Ex. 9, Nelles Decls. at

It was not a representation concerning infrastructure

related to risk management more broadly, and the CAC does not
allege that the infrastructure related to those projects was not
substantially complete.
Alleged Misstatement 17 is similarly unrelated to the
allegations in the CAC.

In Alleged Misstatement 17, Mr. Gespach

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stated that Citigroup was “operating above every one of our
regulatory requirements.”

(CAC ¶ 357.)

But this was a very

specific representation concerning Citigroup’s “Common Equity
Tier 1” ratio of capital to assets, which was in fact above the
“current regulatory requirement of just 10%.”
Decls. at 1-2; Ex. 32, Nelles Decls. at 2.)

(Ex. 10, Nelles
It was not a

representation that Citigroup exceeded every regulatory
requirement to which it was subject, and no reasonable investor
would have understood it to be.

There are no allegations in the

CAC suggesting that Citigroup was not in compliance with this
regulatory requirement at the time the statement was made.
Turning to Alleged Misstatement 9, Mr. O’Neill’s statement
that he “thought” Citigroup “had no significant control lapses
unlike the year before” (CAC ¶ 327) is an inactionable opinion.
The CAC does not allege that, at the time Mr. O’Neill made the
statement in 2016, there had been a significant control lapse
the year before or that Mr. O’Neill did not hold this opinion.
Rather, Plaintiffs rely, again, on the existence of the October
2020 Orders to suggest that this statement was false or
misleading.

But the existence of the October 2020 Orders does

not support an inference that in 2016 Mr. O’Neill did not
believe that there had not been a significant control lapse the
prior year or that he was aware that the OCC or Fed held a

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contrary view.

Omnicare, 575 U.S. at 186; see also Tongue v.

Sanofi, 816 F.3d 199, 209-10 (2d Cir. 2016).
Alleged Misstatement 16 is not adequately alleged to be
false.

In Alleged Misstatement 16, Mr. Corbat stated that

Citigroup “ha[d] been rebuilding [its] relationship with
regulators,” had made “progress” and had made “investments . . .
in controls” meant “to improve processes across risk, compliance
and audit.”

(CAC ¶ 355.)

Mr. Corbat also cautioned that “we

recognize our job is not done.”

(Ex. 10, Nelles Decls. at 1.)

The statements regarding “progress” and “rebuilding” are clearly
subjective and, at the risk of over repetition, the October 2020
Orders (and news reports that regulators, at unidentified times,
identified unspecified deficiencies) do not render this 2017
statement false or misleading.

Citigroup could well have been

making progress and rebuilding in 2017 and still be subject to
regulatory action in 2020, and nothing in the 2020 October
Orders suggests otherwise.

The portions of the statement

concerning investments fail for the same reasons that the
statements regarding investments failed above.
The representations in Alleged Misstatement 23 that
Citigroup “made progress” and “headway” with regulatory
requirements (CAC ¶ 398) fail for the same reasons.

The

representations that “prudent risk management was top of mind”
and that Citigroup’s “Board and . . . Risk Committee engage
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deeply” with “risk management practices” (id.) related to
“Brexit,” “trade wars,” “underwriting standard,” “[c]yber risk”
and “other areas” (Ex. 14, Nelles Decls. At 4) fail because they
are immaterial “milquetoast corporate-speak,” Menaldi, 277 F.
Supp. 3d at 513, and “[v]ague positive statements regarding”
Citigroup’s “risk management strategy” that “are ‘too general to
cause a reasonable investor to rely upon them.’”

In re

Synchrony Fin. Sec. Litig., 988 F.3d at 170 (quoting ECA, 553
F.3d at 206).

The representations in Alleged Misstatement 33,

that Citigroup “delivered . . . strong risk management” and was
“[f]ocus[ed] on risk management” (CAC
vague and generic.

¶ 429) are similarly

See, e.g., In re Xinhua Fin. Media, Ltd.

Sec. Litig., No. 07 CIV. 3994 LTS/AJP, 2009 WL 464934, at *8
(S.D.N.Y. Feb. 25, 2009) (finding “soft adjective[]” “strong” to
be “nothing more than puffery, which is not actionable under the
securities laws”).
Finally, Alleged Misstatements 18, 24, 28, and 30 all
pertain to Citigroup’s disclosure of various regulatory actions
by the OCC and Citigroup’s efforts to remedy the underlying
issues.

(CAC ¶¶ 359, 400, 406, 410.)

Plaintiffs again rely on

the October 2020 Orders to argue that these statements were
false or misleading, and the effort is again unavailing.
October 2020 Orders do not cite to any ongoing violations

49

The

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 50 of 64

related to the particular issues identified in the earlier
settlements that render these statements false or misleading.
Thus the Court finds that the Alleged Misstatements in this
category, 9, 15-18, 23-24, 28, 30, and 33, are not actionable
for the reasons set forth above.
iii.

Risk Warnings

Alleged Misstatement 8, regarding Citigroup’s risk
warnings, is also not actionable.

“[C]autionary statements of

potential risk have only rarely been found to be actionable by
themselves.”

In re FBR Inc. Sec. Litig., 544 F. Supp. 2d 346,

360 (S.D.N.Y. 2008).

Such warnings “are actionable half-truths

when the company warns about a risk that could have an impact on
its business when, in fact, that risk has already materialized.”
Constr. Laborers Pension Tr. for S. California v. CBS Corp., 433
F. Supp. 3d 515, 536 (S.D.N.Y. 2020).

The CAC does not

adequately allege that the risk had already materialized at the
time Citigroup issued the risk warnings because they were issued
prior to the October 2020 Orders.

Even if there was an

“increased risk” that Citigroup would face regulatory action of
which Citigroup was aware, “[a]n increase in a risk does not
mean the risk has already come to pass, such that a disclosure
that simply identifies the risk would be misleading.

It cannot

be that every time a risk increases or decreases, a company must
precisely quantify the increase or decrease in its disclosures
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identifying that risk.”

Id. at 538 (citation omitted).

Alleged

Misstatement 8 is not misleading or untrue, and it is not
actionable.
iv.

Alleged Accounting and Regulatory False
Statements and Omissions

Plaintiffs leave no stone unturned and assert misstatements
based on (i) Accounting Standards Codification 450 (“ASC 450”),
(ii) SEC Item 303, and (iii) SOX certifications.

None of these

theories saves Plaintiffs’ claims.
ASC 450 requires a specific accrual for a loss contingency
that is “probable” and for which “the amount of loss can be
reasonably estimated.”

(CAC ¶¶ 438, 441.)

In Plaintiffs’ view,

Citigroup should have classified the amount of money that it
ultimately estimated it would have to spend to comply with the
October 2020 Orders as “loss contingencies” at least by the
start of the Class Period.

(CAC ¶ 450.)

However, to plead an

accounting theory of securities fraud, Plaintiffs must
adequately allege that the “earlier impairment charge was so
clearly required by accounting principles that the failure to
take such a charge was fraudulent.”

In re Loral Space &

Commc’ns Ltd. Sec. Litig., 2004 WL 376442, at *17 (S.D.N.Y. Feb.
27, 2004).

But Plaintiffs do not allege any concrete facts

known to Defendants prior to the October 2020 Orders suggesting
that generally accepted accounting principles “so clearly

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required” Citigroup to quantify risk management spending as a
loss contingency.

That, in hindsight, Citigroup was wrong about

the necessary spending does not make its statements actionable
misrepresentations.

Burr v. Equity Bancshares, Inc., No. 19-CV-

4346 (AJN), 2020 WL 6063558, at *6 (S.D.N.Y. Oct. 14, 2020);
Charter Twp. of Clinton Police & Fire Ret. Sys. v. KKR Fin.
Holdings LLC, No. 08 CIV. 7062 PAC, 2010 WL 4642554, at *19
(S.D.N.Y. Nov. 17, 2010).
SEC Item 303 requires disclosure of “known trends or
uncertainties that have had or that are reasonably likely to
have a material favorable or unfavorable impact on net sales or
revenues or income from continuing operations.”
§ 229.303(b)(2)(ii).

17 C.F.R.

Plaintiffs’ Item 303 claim fails because,

as set forth above, the CAC does not adequately allege that the
alleged underinvestment in risk management or the eventual
October 2020 Orders were “presently known” to the Defendants at
the relevant times.

In re Bank of Am. AIG Disclosure Sec.

Litig., 980 F. Supp. 2d 564, 584 (S.D.N.Y. 2013).

Further, as

set forth above, Citigroup “provided disclosures regarding its
risks that were company-specific and related to the direct risks
it uniquely faced” and was not required to do more.

Ong v.

Chipotle Mexican Grill, Inc., No. 16 Civ. 141 (KPF), 2017 U.S.
Dist. LEXIS 33170, 2017 WL 933108, at *11 (S.D.N.Y. Mar. 8,
2017); In re Sanofi Secs. Litig., 87 F. Supp. 3d 510, 536
52

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(S.D.N.Y. 2015) (“These statements conveyed substantive
information about the risk that ultimately materialized.

As

such, they were meaningful cautionary language, not mere
boilerplate.”), aff'd sub nom. Tongue v. Sanofi, 816 F.3d 199
(2d Cir. 2016).
Finally, Plaintiff suggests that Individual Defendants’
allegedly misleading SOX certifications are actionable because
they falsely represented that its ICFR and DCPs were effective.
(CAC ¶¶ 488-90, 518-19.)

SOX certifications are “statement[s]

of opinion,” which “contain an important qualification that the
certifying officer’s statements are true based on his or her
knowledge.”

In re AmTrust Fin. Servs., Inc. Sec. Litig., No.

17-CV-1545 (LAK), 2019 U.S. Dist. LEXIS 153297, 2019 WL 4257110,
at *24 (S.D.N.Y. Sept. 9, 2019) (brackets omitted).

Yet,

Plaintiff offers nothing beyond conjecture to suggest that the
Individual Defendants knew—at the time they signed their
certifications—of any misrepresentations in Citigroup’s
financial statements or deficiencies in the Company’s internal
controls.

Post-Class Period identification of control

deficiencies and misstatements, without more, does not show
otherwise.

Lachman v. Revlon, Inc., 487 F. Supp. 3d 111, 134

(E.D.N.Y. 2020) (“Plaintiffs fail to allege that [the company’s]
SOX certifications were materially false or misleading simply

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because a weakness in [the company’s internal controls over
financial reporting] was later discovered.”).
B.

Whether Plaintiffs Have Adequately Pled Scienter

Defendants also move to dismiss Plaintiff's Section 10(b)
and Rule 10b-5 claims because Plaintiffs failed to plead
scienter.

Recall that Plaintiffs may show scienter in one of

two ways:

(i) evidence that Individual Defendants had “a motive

and opportunity to commit the fraud” or (ii) “strong
circumstantial evidence of conscious misbehavior or
recklessness.”
omitted).

Blanford, 794 F.3d at 306 (quotation marks

Plaintiffs’ allegations fall short under either

theory, especially since, when evaluating scienter, “the [C]ourt
must take into account plausible opposing inferences.”

Tellabs,

551 U.S. at 323.
In terms of motive and opportunity, Plaintiffs argue
that the Individual Defendants had motive because Mr.
Corbat was motivated “to counter negative perceptions about
Citigroup’s efficiency ratio,” which was the “sine qua non”
of his tenure and “a source of enormous pressure.”
Br. at 21 (citing CAC ¶¶ 91, 97-115).)

(Opp.

Initially, this

argument pertains only to Mr. Corbat and not to the
remaining Individual Defendants.

Setting that aside, this

alleged motive is not “concrete” or “personal” even as to
Mr. Corbat.

Teamsters, 531 F.3d at 196.
54

This is just a

Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 55 of 64

roundabout way of saying that Mr. Corbat was motivated to
keep his job by “maintain[ing] the appearance of corporate
profitability.”

Chill v. Gen. Elec. Co., 101 F.3d 263, 268

(2d Cir. 1996).

Such a motive is common to all corporate

officers and cannot support an inference of fraudulent
intent.

Id.; Kalnit v. Eichler, 264 F.3d 131, 140 (2d Cir.

2001).
Implicitly recognizing this, Plaintiffs instead focus
on the Individual Defendants’ purported recklessness, (see
Opp. Br. at 18-22), which the Court of Appeals defines as
“conduct which is highly unreasonable and which represents
an extreme departure from the standards of ordinary care.”
Novak, 216 F.3d at 308 (quotation marks omitted).

To

satisfy that standard, Plaintiffs point to four families of
facts it avers circumstantially evidence scienter:

(i) the

OCC’s $400 million CMP, (see Opp. Br at 18); (ii)
Individual Defendants’ alleged claims of involvement with
risk management, (see id. at 19); (iii) Individual
Defendants’ knowledge of “core operations,” (see id. at 1920); and (iv) Mr. Corbat’s and Hu’s resignations (see id.
at 20).

None of those allegations gives rise to the

required strong inference of scienter.
Plaintiffs are incorrect that the OCC’s CMP supports a
finding of scienter by the Individual Defendants.
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Plaintiffs’ argument is premised on the faulty proposition
that OCC examiners only propose CMPs for “serious
misconduct, including misconduct that is reckless,
flagrant, willful, or knowing and [] because of its
frequency or recurring nature, shows a general disregard
for law or regulation” and that, therefore, the Individual
Defendants must have behaved at least recklessly.
Br. at 18 (citing CAC ¶ 254).)

(Opp.

This proposition is

incorrect for a number of reasons.

First, the OCC order is

directed at Citigroup, not any of the Individual
Defendants.

It tells the Court little to nothing about the

Individual Defendants’ scienter to know that a penalty was
assessed against Citigroup.

Second, though OCC guidance

states that examiners should impose fines in cases of
“serious misconduct,” it never limits fines to
“misconduct,” serious or otherwise, or states that fines
should not be imposed unless there is serious misconduct.
(Ex. 27, Nelles Decls. at 51.)
Third, even assuming that the OCC does impose CMPs
only for “serious misconduct,” this “include[es],” and thus
is not limited to, “misconduct that is reckless, flagrant,
willful, or knowing” (id.), meaning that it need not be
reckless as well.

Indeed, the OCC order states that the

monetary penalty was assessed pursuant to the authority
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provided by 12 U.S.C. section 1818(i).
Decls. at 1.)

(Ex. 26, Nelles

This section, in turn, provides that a

heightened penalty can be assessed for “committ[ing] any
[of the enumerated] violation[s];” “recklessly engag[ing]
in an unsafe or unsound practice;” or “breach[ing] any
fiduciary duty” if that “violation, practice, or breach”
is, among other things, “part of a pattern of misconduct.”
12 U.S.C. § 1818(i)(2)(B) (emphasis added).

Given there is

at least one way by which a bank could engage in a “pattern
of misconduct” without being found reckless, i.e., by
“committ[ing] any violation” as part of a pattern, a CMP
certainly does not require reckless conduct to be
statutorily sound.

Plaintiffs’ dictionary definition does

not change the calculus.

Indeed, Plaintiffs chose the

second definition, that misconduct is “intentional or
wanton wrongful but usually not criminal behavior” (Opp.
Br. at 12), but in that same source the first definition
provides that misconduct can simply mean “mismanagement.”
Merriam-Webster.com Dictionary, available at
https://www.merriam-webster.com/dictionary/misconduct.
Black’s Law Dictionary defines misconduct as “[a]
dereliction of duty; unlawful, dishonest, or improper
behavior.”
2019).

MISCONDUCT, Black's Law Dictionary (11th ed.

This too can, but need not, involve wrongful or
57

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Case 1:20-cv-09132-LAP Document 139 Filed 03/24/23 Page 58 of 64

culpable intent and can simply be premised on “unlawful”
behavior.

Notably, Black’s Law Dictionary has separate

definitions for “wanton misconduct” and “willful and wanton
misconduct” both of which do include recklessness in the
definition.

(Id.)

While the OCC order certainly refers to

a “pattern of misconduct” it does not refer to “reckless”
conduct.

(Ex. 25, Nelles Decls. at Art. II § 6.)

Given

the statutory structure and the definitions set forth
above, the Court cannot infer that the imposition of a CMP
equates to a finding of recklessness.
Plaintiffs’ theory based on Defendants’ alleged claims
of involvement with risk management fails as well.

“[T]o

establish an inference of scienter, Plaintiff[s] must do
more than allege that the Individual Defendants had or
should have had knowledge of certain facts contrary to
their public statements simply by virtue of their highlevel positions.”

Lipow v. Net 1 UEPS Techs., Inc., 131 F.

Supp. 3d 144, 163 (S.D.N.Y. 2015).

Thus, “[w]here scienter

is based on a defendant’s knowledge of and/or access to
certain facts,” Plaintiffs must allege facts showing that
(i) “specific contradictory information was available to
the defendants” (ii) “at the same time they made their
misleading statements.”

In re Adient plc Sec. Litig., No.

18-CV-9116 (RA), 2020 WL 1644018, at *27 (S.D.N.Y. Apr. 2,
58

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2020).

And “[w]here plaintiffs contend defendants had

access to contrary facts, they must specifically identify
the reports or statements containing this information.”
Novak, 216 F.3d at 309.

As set forth in detail above,

Plaintiffs have not identified any specific fact that the
Individual Defendants possessed that contradicted their
statements at the time they were made.

Plaintiffs have

certainly alleged that the OCC and Fed communicated
concerns with some aspects of Citigroup’s risk management
systems at different times, but “such vague allegations
fail to provide any specific information sufficient to
suggest, let alone adequately plead, that Defendants’
statements . . . were false when made, or that Defendants’
belief in them was unreasonable.”

In re Adient plc Sec.

Litig., 2020 WL 1644018, at *28 (internal quotations
omitted).
Plaintiffs’ reliance on the “core operations doctrine”
is also misplaced.

Even assuming that the risk management

systems qualify as “core operations,” “the core operations
theory at most constitutes supplemental support for
alleging scienter but does not independently establish
scienter.”

Lipow, 131 F. Supp. 3d at 174.

Supplemental

support “cannot serve to independently establish scienter”
or “bolster” an inference of scienter where Plaintiffs have
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not adequately alleged an independently sufficient basis.
Id.
Finally, Plaintiffs rely on Mr. Corbat’s and Mr. Hu’s
resignations. “Terminations or resignations of corporate
executives are insufficient alone to establish an inference
of scienter,” Woolgar v. Kingstone Cos., Inc., 477 F. Supp.
3d 193, 240 (S.D.N.Y. 2020), because “there are any number
of reasons that an executive might resign, most of which
are not related to fraud,” Das v. Rio Tinto PLC, 332 F.
Supp. 3d 786, 815 (S.D.N.Y. 2018).

Additional factual

allegations linking the termination or resignation to the
alleged fraud are necessary.
at 240.

See Woolgar, 477 F. Supp. 3d

“Put differently, a resignation can establish

scienter only if the plaintiff alleges independent evidence
corroborating that the employee who resigned held a
culpable state of mind.

Standing alone, however, an

employee’s resignation does not raise a strong inference of
scienter.”

Schiro v. Cemex, 396 F. Supp. 3d 283, 303

(S.D.N.Y. 2019).

Here, the only relevant fact alleged is

that Messrs. Corbat and Hu resigned, perhaps ahead of
schedule, around the time of the October 2020 Orders.
does not raise a strong inference of scienter.

This

Indeed, it

is not surprising that a CEO might resign as a result of
significant regulatory actions related to the management of
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the company during his or her tenure.

Id. at 303 (“When

corporate misconduct is disclosed, members of management
resign for all sorts of reasons, including that they were
negligent in overseeing the responsible employees or simply
because the optics of changing management are better for
investors and regulators.”); Lighthouse Fin. Grp. v. Royal
Bank of Scot. Grp., 902 F. Supp. 2d 329, 343 (S.D.N.Y.
2012) (“The resignations . . . are at least as consistent
with punishing those at the helm for their poor judgment
and leadership, than resignations relating to concocting a
scheme to defraud shareholders.”).

It does not raise an

inference of intentionality or recklessness.
Finally, Plaintiffs argue that the Court must consider
the allegations “holistically.”

Plaintiffs are correct

that “the [C]ourt’s job is not to scrutinize each
allegation in isolation but to assess all the allegations
holistically.”

Tellabs, 551 U.S. at 326.

But that does

not mean that Plaintiffs can “combine inadequate
allegations of motive with inadequate allegations of
recklessness . . . to demonstrate scienter.”
F.3d at 141.

Kalnit, 264

After all, “zero plus zero cannot equal one.”

Reilly v. U.S. Physical Therapy, Inc., No. 17 CIV. 2347
(NRB), 2018 WL 3559089, at *19 (S.D.N.Y. July 23, 2018).
Thus, even viewed holistically, Plaintiffs allegations fail
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to state with particularity facts giving rise to a strong
inference of scienter.

The more likely inference is that

the Defendants thought that their risk management systems
and controls were adequate at the time they made the
statements.
In short, Plaintiffs’ allegations regarding scienter
do not support a “powerful or cogent” inference that
Individual Defendants harbored thoughts of fraud.
551 U.S. at 323.

As a result, there is also no intent that

can be imputed to the Company.
195.22

Tellabs,

See Teamsters, 531 F.3d at

Consequently, Plaintiff’s Section 10(b) and Rule

10b-5 claims must also be dismissed on the basis of lack of
scienter.
C. Section 20(a) Claims
Plaintiffs also assert a control person claim against
the Individual Defendants Under Exchange Act § 20(a). (CAC
¶¶ 580-86.) To establish control person liability, the
plaintiff must allege:

(i) “a primary violation by the

controlled person,” (ii) “control of the primary violator

Plaintiffs’ theory of corporate scienter relies entirely on
imputing the scienter of the Individual Defendants and other
employees to Citigroup. (CAC ¶¶ 306-08.) Because the CAC fails
adequately to allege scienter on the part of the Individual
Defendants and does not identify any other particular employee
with adequate scienter, corporate scienter is necessarily
lacking.
22

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by the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled
person's fraud.” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 108 (2d Cir. 2007).

Because, as discussed

above, Plaintiffs have failed to establish a primary
violation of the securities laws, their section 20 claim
necessarily collapses and is dismissed.

See In re Merrill

Lynch Auction Rate Sec. Litig., 851 F. Supp. 2d 512, 530
(S.D.N.Y. 2012).
D. Leave to Amend
In a single sentence at the end of their opposition
brief, Plaintiffs request leave to amend if the Court
dismisses the Complaint.

(Opp. Br. at 40.)

Although Rule

15(a)(2) directs courts to “freely grant leave” to amend a
pleading “when justice so requires,” Fed. R. Civ. P.
15(a)(2), courts may deny leave “for good reason, including
futility, bad faith, undue delay, or undue prejudice to the
opposing party.”

McCarthy v. Dun & Bradstreet Corp., 482

F.3d 184, 200 (2d Cir. 2007).

Plaintiffs have not proposed

any specific amendments, and the Court has serious doubts
that they can add any allegations that would shore up their
CAC.

As a result, the Court will not grant Plaintiffs’

request, but Plaintiffs may move for leave to amend to
explain further how any amendment would cure the defects
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