Citigroup Inc., et al. v. AHW Investment Partnership, MFS, Inc., et al.Annotate this Case
The plaintiffs were all affiliates of Arthur and Angela Williams, who owned stock in Citigroup. The defendants were Citigroup and eight of its officers and directors. In 1998, Citicorp and Travelers Group, Inc. merged, forming Citigroup. At that point, Arthur Williams's shares in Travelers Group were converted into 17.6 million shares of Citigroup common stock, which were valued at the time of the merger at $35 per share. In 2007, the Williamses had these shares transferred into AHW Investment Partnership, MFS Inc., and seven grantor-retained annuity trusts, all of which the Williamses controlled. In 2007, the Williamses sold one million shares at $55 per share. But, the Williamses halted their plan to sell all of their Citigroup stock because, based on Citigroup's filings and financial statements, they concluded that there was little downside to retaining their remaining 16.6 million shares. The Williamses allegedly held those shares for the next twenty-two months, finally selling them in March 2009 for $3.09 per share. After selling their 16.6 million shares, the Williamses sued Citigroup in the U.S. District Court for the Southern District of New York, arguing that their decision not to sell all of their shares in May 2007, and their similar decisions to hold on at least three later dates, were due to Citigroup‘s failure to disclose accurate information about its true financial condition from 2007 to 2009. The Second Circuit certified a question of Delaware law to the Delaware Supreme Court arising from an appeal of a New York District Court decision. The Second Circuit asked whether the claims of a plaintiff against a corporate defendant alleging damages based on the plaintiff‘s continuing to hold the corporation's stock in reliance on the defendant's misstatements as the stock diminished in value properly brought as direct or derivative claims. The Delaware Court answered: the holder claims in this action were direct. "This is because under the laws governing those claims [(]those of either New York or Florida[)] the claims belong to the stockholder who allegedly relied on the corporation's misstatements to her detriment. Under those state laws, the holder claims are not derivative because they are personal to the stockholder and do not belong to the corporation itself."