Citibank Hungary, a distributor of Lehman Brothers-issued structured notes, has won a case brought by an investor claiming a full refund plus interest after both the issuer, Lehman Brothers Treasury, and the guarantor, Lehman Brothers Holdings, became insolvent.
The claimant argued that the distributor Citibank withheld information about the financial situation of Lehman Brothers Treasury and Lehman Brothers Holdings.
The Supreme Court dismissed the charges against Citibank as Section 6 of the Capital Markets Act does not apply to a secondary distributor. Securities issued in the Eurozone and approved by the home member state can be distributed as long as the relevant regulator, in this case the Hungarian Financial Supervisory Authority, is informed. The claim based on Citibank's duty to inform the investor was not upheld either, as this duty is split between the distributor and issuer. The distributor has to inform the investor about the core terms of the product, but it is the issuer's responsibility to include all other details in the prospectus received by the investor, including the issuer's and the guarantor's financial positions.
The claimant had invested $50,000 in Lehman Infra USD Structured Bond (XS0306901330), a three-year product linked to the S&P Global Infrastructure index that raised $3.1m. This USD-denominated capital-guaranteed growth product was issued 29 July 2007 with maturity in August 2010, and offered a minimum of 100% of initial capital at maturity plus 85% participation in the rise of the index above the strike level.
According to Citibank's press release, in the spring of 2010 Citibank Hungary offered to buy back Lehman Brothers bonds purchased by its clients at 55% of face value, for cash with prompt payment. Hungarian private investors had bought about HUF6.2bn (€20.5m) of the structured bonds between June 2004 and May 2008.