Citigroup Inc.

In addition, beginning in July 2010, several investors, including CambridgePlace Investment Management, The Charles Schwab Corporation, the FederalHome Loan Bank of Chicago, the Federal Home Loan Bank of Indianapolis,and Allstate Insurance Company and affiliated entities, have filed lawsuitsagainst Citigroup and certain of its affiliates alleging actionable misstatementsor omissions in connection with the issuance and underwriting of residentialMBS. As a general matter, plaintiffs in these actions are seeking rescission of theirinvestments or other damages. Additional information relating to these actionsis publicly available in court filings under the docket numbers 10 Civ. 11376(D. Mass.) (Gorton, J.), 10 Civ. 04030 (N.D. Cal.) (Illston, J.), 10-CH-45033(Ill. Cir. Ct.), 10 Civ. 09105 (C.D. Cal.) (Pfaelzer, J.), 10 Civ. 01463 (S.D. Ind.)(Lawrence, J.), 11-0555 (Mass. Super. Ct.) and 650432/2011 (N.Y. Sup. Ct.).Separately, at various times, parties to RMBS securitizations, amongothers, have asserted that certain Citigroup affiliates breached representationsand warranties made in connection with mortgage loans placed intosecuritization trusts and have sought repurchase of the affected mortgageloans or indemnification from resulting losses, among other remedies.The frequency of such demands may increase in the future, and some suchdemands may result in litigation.ASTA/MAT and Falcon-Related Litigation and Other MattersASTA/MAT and Falcon were hedge funds managed and marketed byCitigroup that performed well for many years but suffered substantial lossesduring the credit crisis. The SEC is investigating the marketing, managementand accounting treatment of the Falcon and ASTA/MAT funds. Citigroup iscooperating fully with the SEC’s inquiry.In addition, several investors in Falcon and ASTA/MAT have filed lawsuitsor arbitrations against Citigroup and Related Parties seeking recoupment oftheir alleged losses. Many of these investor disputes have been resolved, andthe remainder are in various procedural stages.Auction Rate Securities—Related Litigation and OtherMattersBeginning in March 2008, Citigroup and Related Parties have been namedas defendants in numerous actions and proceedings brought by Citigroupshareholders and customers concerning ARS. These have included, amongothers: (i) numerous arbitrations filed by customers of Citigroup and itssubsidiaries seeking damages in connection with investments in ARS, whichare in various procedural stages; (ii) a consolidated putative class actionasserting claims for federal securities and other statutory and common lawviolations, in which a motion to dismiss is pending; (iii) two putative classactions asserting violations of Section 1 of the Sherman Act, which have beendismissed and are now pending on appeal; and (iv) a derivative action filedagainst certain Citigroup officers and directors, which has been dismissed.Lehman Structured Notes MattersLike many other financial institutions, Citigroup, through certain of itsaffiliates and subsidiaries, distributed structured notes (Notes) issued andguaranteed by Lehman entities to retail customers in various countriesoutside the United States, principally in Europe and Asia. After the relevantLehman entities filed for bankruptcy protection in September 2008, certainregulators in Europe and Asia commenced investigations into the conductof financial institutions involved in such distribution, including Citigroupentities. Some of those regulatory investigations have resulted in adversefindings against Citigroup entities. Some purchasers of the Notes have filedcivil actions or otherwise complained about the sales process. Citigroup hasdealt with a number of such complaints and claims on an individual basisbased on the particular circumstances.In Belgium, Greece, Hungary, Spain, Poland and Turkey, Citigroupmade a settlement offer to all eligible purchasers of Notes distributed byCitigroup in those countries. A significant majority of the eligible purchasersaccepted Citigroup’s settlement offer, made without admission of liability,in full and final settlement of all potential claims. A limited number ofeligible purchasers declined to settle and are pursuing civil lawsuits. Theapproximate aggregate par value of Notes that are the subject of these suits isless than $10 million.Criminal investigations are open in Greece. In Belgium, criminal chargeswere brought against a Citigroup subsidiary (CBB) and three current orformer employees. The Public Prosecutor had asked the criminal court toimpose on CBB a fine of 660,000 Euro and a confiscation order of up to131,476,097.90 Euro, and to sanction the three individual employees. OnDecember 1, 2010, all defendants were cleared of fraud and anti-moneylaundering charges and the related confiscation requests. The court alsorejected certain other charges but convicted all defendants under theProspectus Act, and convicted CBB under Fair Trade Practices legislation.CBB was fined 165,000 Euro, and each individual defendant was fined427.50 Euro. Sixty-three non-settling civil claimants had made civil claimsin the criminal proceedings with respect to Notes with an aggregate parvalue of approximately 2.4 million Euro. Citi was ordered to compensate all63 claimants for the full par value of their Notes, less the value ultimatelyreceived for their Notes in the Lehman bankruptcies. CBB has appealedthe judgment.In Hong Kong, regulators have conducted investigations of banks thatdistributed Notes, including a Citigroup subsidiary (CHKL). With respectto certain other banks, the regulators have completed their investigationand required these banks to compensate some purchasers of Notes for allor a portion of their losses. The regulators have not yet concluded theirinvestigation of CHKL. The total subscription amount of the Notes CHKLdistributed in Hong Kong is approximately $200 million.Lehman Brothers Bankruptcy ProceedingsCitigroup and Related Parties may face claims in the liquidation proceedingof Lehman Brothers Inc. (LBI), the broker-dealer subsidiary of LehmanBrothers Holdings Inc. (LBHI), pending before the United States BankruptcyCourt for the Southern District of New York under the Securities InvestorProtection Act (SIPA). The SIPA Trustee has advised Citigroup and RelatedParties that the Trustee may seek to recover a $1 billion setoff that Citibank,N.A. took with respect to certain clearing obligations of LBI. In addition,LBHI or its subsidiaries may assert bankruptcy avoidance and other claimsagainst Citigroup and Related Parties in their Chapter 11 bankruptcyproceedings, including, among others, claims seeking the return of a$2 billion deposit LBHI made with Citibank in June 2008, prior to LBHI’scollapse. Citibank believes that it has the right to set off against this depositclaims it has against LBHI arising under derivatives contracts and loandocuments. Additional information relating to the liquidation proceedingof LBI, captioned IN RE LEHMAN BROTHERS INC., is publicly available in286