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Citigroup unit wins CDS dispute with hedge fund

Date: Thursday, March 11, 2010
Author: Reuters

A Citigroup Inc (C.N) broker-dealer unit need not face arbitration in a dispute with Channel Islands hedge fund VCG over a credit default swap, a federal appeals court ruled on Wednesday.

VCG Special Opportunities Master Fund Ltd sued Citigroup Global Markets Inc (CGMI) in 2008 alleging a violation of their agreement. It charged that this violation triggered VCG's obligation to pay $10 million to another Citigroup unit, Citibank.

Citibank had declared a writedown of the assets in the CDS agreement.

CGMI argued that it was not a party to and did not broker the VCG-Citibank credit default swap and asked a U.S. District judge to suspend the litigation.

In a written ruling, the U.S. Court of Appeals for the Second Circuit in New York upheld Judge Barbara Jones's Nov. 12, 2008, order and denial of VCG's motion requesting that she reconsider her decision.

"We hold that this circuit's 'serious questions' standard for the consideration of a motion for a preliminary injunction remains valid in the wake of recent Supreme Court opinions clarifying the requirements and burdens placed on a party seeking a preliminary injunction," the three-judge appeals panel wrote.

"We further hold that, in applying that standard to CGMI's motion, the district court did not abuse its discretion in granting the requested injunction."

In addition to suing Citigroup, Jersey Island-based VCG began arbitration proceedings before the Financial Industry Regulatory Authority. The district court suspended the arbitration pending final resolution of the lawsuit.

The case is Citigroup Global Markets Inc v VCG Special Opportunities Master Fund Limited, U.S. Court of Appeals for the Second Circuit in New York, No. 08-6090.