Wednesday, May 20, 2009

The Citi never sleeps because...

...the Singapore tycoon, Mr. Oei Hong Leong sues Citibank for "negligence and misrepresentation" after he had lost $1 billion on foreign exchange and US Treasury bond transactions last year.

Citibank was quoted to respond with a firm statement: "We believe that the claim is without merit and we fully intend to defend our position vigorously."

It will be an interesting case to follow. Both have much to win...and to lose. And I am not just referring about 'money', but also more importantly 'reputation'.

Local businessman Oei Hong Leong - dubbed the 'man with the Midas touch' - lost a whopping $1 billion on foreign exchange and US Treasury bond transactions last year.

While he has fully paid off these losses, he is now suing Citigroup's private banking arm in the High Court for negligence and misrepresentation, legal documents seen by The Straits Times reveal.

Mr Oei claims that the bank - with which he has a 30-year relationship - repeatedly gave him an inaccurate picture of his trading exposure, causing him to take on more positions than he would have otherwise done so.

When he knew the full extent of his exposure, he felt he had no choice but to close his positions - at an extremely volatile time last October - thus suffering massive losses.

It is not clear how much of a beating Mr Oei's net worth has taken, but he was ranked Singapore's 29th richest man by Forbes last year with a net worth of only US$210 million (S$308 million). Forbes bases its listing on stakes in publicly traded companies and in private company filings.

Ironically, Mr Oei has become the latest high-profile victim of the financial crisis because he was trying to reduce his exposure.

In 2007, he believed that the global economy would experience a downturn and decided to trim his trading positions, his statement of claim says.

Meanwhile, he told his private bankers that he wanted to maintain a margin surplus of about US$100 million.

This is cash placed with a bank and clients can trade up to several times that amount. If the trades run up losses, this margin has to be topped up.

Following a change of relationship manager last year, Mr Oei dealt mainly with two assistants in the private banking department, whom he would call to check on the balance on a daily basis.

From Straits Times, "Oei sues Citigroup".



Singapore-based businessman Oei Hong Leong has sued Citigroup's private bank for negligence and misrepresentation after he lost S$1 billion on foreign exchange and bond trades last year, the Straits Times reported on Tuesday.

Oei's lawsuit said Citi, with which he has a 30-year relationship, repeatedly gave him an inaccurate picture of his trading exposure, which led him to take on more positions than he would have taken otherwise, the newspaper said, citing court documents. It said Oei declined to comment about the court case.

A spokesman from Citi told Reuters in an email: "We believe that the claim is without merit and we fully intend to defend our position vigorously." It declined to comment further on the matter.

There was no immediate comment available from Oei's office.

Oei was ranked Singapore's 29th richest person by Forbes last year with a net worth of $210 million. Forbes calculated Oei's wealth based on his stakes in publicly traded companies and in private company filings.

According to Straits Times, Oei claimed he felt compelled to close his positions at an extremely volatile time in October last year, taking huge losses, as he felt he had no choice after discovering the full extent of his exposure.

Some angry Asian private banking clients have filed lawsuits after losing money on complex financial products battered in a global market meltdown last year, forcing the industry into damage control.

From Yahoo! News, "Singapore tycoon sues Citi over $684 mln losses-paper".



Update on 19/06: As expected (what else they can do? Give in?!), Citi rejects Oei's claim. The legal battle shall be...tedious!

United States banking giant Citigroup has submitted its defence in a landmark lawsuit by local businessman Oei Hong Leong who says the bank's negligence cost him $1 billion.

The bank said Mr Oei - one of Singapore's wealthiest men - is an experienced and sophisticated investor who knew the risks of trading. It denies it was negligent in its dealings with him or that it gave inaccurate or misleading information.

Mr Oei, aged about 60, had a net open trading position of as much as US$6.9 billion (S$10 billion) in February last year, the bank said.

Mr Oei, a Citigroup client for 30 years, has alleged misrepresentation and inaccurate information from the private banking arm of Citibank. This led him to have to close his trading positions at the height of the market volatility late last year, putting him badly into the red.

Citigroup's defence, filed late on Thursday night, is the latest step in what some lawyers say could be a test case of the scope of private banks' responsibilities to clients.

One key element of the case involves the events leading up to massive foreign exchange losses that Mr Oei suffered.

In Mr Oei's dealings with the bank, he was provided with 'margin shortfall' figures. This is the sum he would need to top up, given a souring of investments.

According to Mr Oei, on Oct 22 last year, his margin shortfall was US$80 million. On Oct 27, it had jumped to US$90 million, and was more than US$200 million on Oct 28, but was back to US$28 million on Oct 29. He was later told that on Oct 27, the margin shortfall could have been as much as US$348 million.

Mr Oei claims the figures did not reflect the true market movements. He alleges the bank temporarily suffered a 'meltdown' in the accounting systems which tracked such shortfalls.

Relying totally on these shortfall figures supplied by Citibank to manage his portfolio, he grew concerned over their accuracy. However, as the losses spiralled he felt he had no choice but to close his positions, leading to losses of about US$518 million.

From Straits Times, "Citi rejects Oei's claim".

Global banking giant Citibank has refuted allegations by business tycoon Oei Hong Leong that it caused him to suffer huge losses in his foreign exchange dealings.

Mr Oei is claiming unspecified losses and damages, believed to be in the hundreds of millions of dollars.

The businessman has accused Citi of making a mistake in the treatment of his margin accounts. He claimed that on September 15 last year, he was told he had a margin surplus of around US$100 million, but this doubled the next day to US$200 million.

He alleged that the additional margin led him to undertake currency option transactions, which he otherwise would not have done.

Citi's defence against Mr Oei's claims were filed on Thursday night and are based on three key points.

First, they said that at no time was Mr Oei misled on the amount of assets used in the computing of his collateral and in setting his trading margins.

Second, the bank points out that Mr Oei was and is a highly sophisticated and experienced trader, and had confirmed that he understood and was willing to take considerable risks to increase potential returns.

Citi also said the tycoon's trading in currency options was influenced by his own views of the markets and not just based on his margin surplus during that period.

The bank also refuted Mr Oei's claim that it had caused him to suffer losses when it failed to execute an earlier order for 30-year US treasury bonds worth US$600 million.

It said the order could not be filed as he had set his limit process below the indicative market prices.

The bank said it has acted professionally in managing Mr Oei's account and maintains that it has comprehensive and robust systems in place to handle clients' orders and transactions.

A pre-trial conference between the two parties is said to be set for mid-July.

From Channel NewsAsia, "Citibank refutes allegations from business tycoon Oei Hong Leong".



Update on 02/07: Oei argues back that he is not disputing that he is a highly experienced investor. He claims Citibank failed to provide him with accurate and reliable information about his margin positions.

Businessman Oei Hong Leong has hit back at claims made by Citibank over his foreign exchange losses as the legal battle between the tycoon and the US banking giant goes up a gear.

Mr Oei's reply to the Citibank defence filed a fortnight ago centred on a few key points, including the bank's contention that it could not be responsible for losses racked up by such a highly sophisticated investor making his own investment decisions.

In his reply filed with the High Court on Tuesday, Mr Oei said that this was irrelevant as he was not disputing that he is a highly experienced investor.

'I have been a private banking customer with Citibank for about 30 years,' he said.

Instead, he is arguing that he had depended on Citibank to provide him with accurate and reliable information about his margin positions to aid him in his trading decisions.

In particular, he is alleging that the bank's inclusion of a certain US$50 million (S$72 million) sum in his trading lines had misled him about his trading exposure.

Mr Oei launched his suit against Citibank for negligent mistatement and misrepresentation in May. He claims that he lost $1 billion on his forex investments as a result of this lack of reliable information. He has settled all outstanding amounts with the bank.

Mr Oei invested in various foreign exchange contracts on margins, meaning that he needed only to stump up in collateral a fraction of the total outstanding amount of his trades.

The value of such contracts fluctuated daily, depending on how the currencies moved. The bank calculated the value of all these contracts daily and worked out a total value.

Based on collateral that he placed with Citibank, Mr Oei would have had to top up more funds to maintain the margin level or he may have had a surplus. Individual investors would not normally have the tools to calculate the value of such contracts.

From Straits Times, "Oei hits back at Citi".



Update on 01/10: The Citi finally sleeps because...Oei & Citi managed to reach an out-of-court settlement. The amount is, of course, confidential.

Businessman Oei Hong Leong and Citigroup have reached an out-of-court settlement over claims that he was misled by the bank into losing some $1 billion from foreign exchange and US Treasury bond transactions.

In a brief statement on Thursday, the bank said: 'Citi and Mr Oei Hong Leong have reached an amicable settlement, as a result of which Mr Oei will be discontinuing the action. The terms of the settlement are confidential.'

In May, Mr Oei sued Citigroup's private banking arm in the High Court for negligence and misrepresentation.

Mr Oei claimed that the bank had repeatedly given him an inaccurate picture of his trading exposure, causing him to take on more positions than he would have otherwise done so.

When he knew the full extent of his exposure, he felt he had no choice but to close his positions - at an extremely volatile time last October - thus suffering massive losses.

It is not clear how much of a beating Mr Oei's net worth has taken but in a recent ranking by Forbes, he was listed as the 33rd richest man in Singapore.

From Straits Times, "Oei, Citi settle out-of-court".

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