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Did Citigroup Defraud Billions from U.S. Ally Abu Dhabi?

Abu Dhabi has likely learned an important lesson about how Wall Street does business. An investigative report reveals the company's nasty dealings.
 
 
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According to a  confidential cable published by Wikileaks, the U.S. Embassy in Abu Dhabi sent a communication to the U.S. Secretary of State and U.S. Treasury on December 22, 2009, alerting them to the fact that the investment arm of a U.S. ally, Abu Dhabi, believed it had been defrauded of $4 billion by Citigroup (Wall Street’s serial miscreant and recent ward of the taxpayer).  The cable relayed that William Brown, legal advisor to the Abu Dhabi investment arm, “unequivocally stated that Citi ‘lied’ and must be held accountable.” 

Three years later, Abu Dhabi has likely figured out that in the U.S., gangsters have guns but banksters are far more dangerous – they have ivy league educated lawyers.  One group of lawyers writes the prospectuses that defraud investors; another group writes the contracts that bar these cases from ever seeing sunshine in a public courtroom; and the third group provides skillful white color criminal defense, including a speed dial to their pals in Washington, ensuring that justice will be as elusive as a Wall Street CEO clad in orange.

A three month search of records, that have not yet been sealed or redacted, show that Abu Dhabi landed in the same plundered status as public pension funds and small time investors in Citigroup, while a very special Group of Six reaped a windfall.

It all started with a handshake from a former U.S. Treasury Secretary.  On Monday, November 26, 2007, four days after Thanksgiving, Robert Rubin was standing in one of the most spectacular waterfront buildings in the Middle East – the headquarters of the Abu Dhabi Investment Authority.  With two finger-like wings, the gleaming building showcases an atrium soaring 40 stories into the sky.

Rubin, a former Co-Chairman of Goldman Sachs, whose lavish pay at Citigroup since leaving Treasury in 1999 had reached $120 million for eight years of non-management work, had more than architecture on his mind that day.  He had reluctantly agreed to serve as interim Chairman of Citigroup after the company had earlier that month forced out its Chairman and CEO, Chuck Prince, following spectacular losses and a sinking share price.  Rubin was on a critical mission to secure a $7.5 billion lifeline for Citigroup.

The deal had been reviewed the prior week by the Abu Dhabi Investment Authority’s Strategic Investments Team, headed by Sanjeev Doshi, a graduate of the University of Pennsylvania. Due to fog, the Abu Dhabi team could not fly to New York on November 20, and opted instead for a video conference to quiz the heads of Citigroup’s businesses on November 21. Robert Rubin was now on hand to shake hands with the Managing Director of the Abu Dhabi Investment Authority, Sheikh Ahmed Bin Zayed Al Nahyan, and close the deal.

The Abu Dhabi Investment Authority, universally known as ADIA, is a sovereign wealth fund that invests the kingdom’s surplus cash.  It came through on its end, wiring $7.5 billion into a Citigroup bank account a few days later.

Citigroup is a publicly traded company, whose shares in 2007 were held in the largest public pension funds in America and in mutual funds held in rank and file employees’ 401(k) plans across the country.  This $7.5 billion investment from ADIA was going to convert in a little over two years into approximately 235 million publicly traded common shares of Citigroup stock, diluting all other shareholders.  Despite these facts which called for maximum transparency, Citigroup entered into multiple secret contracts involving this investment, including a November 24, 2007 Confidentiality Agreement and a November 26, 2007 Investment Agreement with ADIA. 

All of the details of those secret agreements have not come to light, but what has emerged is that a core part of the agreements involved the fact that ADIA, like Citigroup’s own workers, would have no access to the public courts of the United States in the event of a dispute.  All claims, including claims of securities fraud, would be forced into an arbitration system where Wall Street lawyers, whose firms had client relationships with Citigroup, would end up serving as judge and jury.  An additional, mind-numbing requirement, was that ADIA would not be allowed to hedge its $7.5 billion investment, despite the fact that Citigroup had just reported massive losses, lost its Chairman and CEO, and was under regulatory scrutiny for off-balance sheet debt held in the Cayman Islands in Structured Investment Vehicles.

 
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