US appeals court allows Korean firm to sue Citibank

By Kim Jae-won

A U.S. appeals court allowed a Korean company to file a lawsuit against Citibank over a foreign exchange derivative, opening the door for the local exporter to claim $73 million from the U.S. bank, the court and the company officials said Wednesday.

The U.S. Court of Appeals for the Second Circuit overturned a New York district court’s ruling, saying the district court’s grant of Citibank’s motion to dismiss Simmtech’s lawsuit on the ground of forum non conveniens fell outside the range of permissible decisions.

Simmtech alleged that Citibank, through Citibank Korea, marketed the knock-in and knock-out options (KIKO) to the company as safe and appropriate investments, causing $73 million of losses between 2006 and 2008.

“It is really apparent that there is a multitude of contracts with New York that indicate a strong likelihood that witnesses and evidence are most conveniently produced in the plaintiff’s chosen forum,” said the appeals court in a ruling.

Simmtech signed a KIKO contract for two to three years amounting to $600 million with Citibank Korea in 2006, but as the won-dollar exchange rate, which was around 900 won by the time the KIKO contract was dealt with, had skyrocketed up to 1,600 won, Simmtech saw damages over 80 billion won including losses of 54.5 billion won in the fourth quarter of 2008.

Citibank said that it is considering blocking the lawsuit with other legal actions.

"We are currently reviewing our options, including renewing our motion to dismiss on other grounds that have yet to be decided by the District Court," said the lender in a statement.

Upon its complaint, plaintiff Simmtech insisted that Citibank intentionally concealed the risky nature of the KIKO product and sold it to the company as if it would be utilized as insurance standing on its expertise in advanced financing products.

Also, Simmtech emphasized the hidden fee structured of the KIKO product of which the company hadn’t been informed. Simmtech held Citibank responsible for not supervising Citibank Korea’s illegal behavior despite its acknowledgement of its KIKO product.

Especially, Simmtech pointed out that the local unit of Citibank is substantially the same body as its headquarters, functioning as a “calculation agent” which is not supposed to be one-sided.

Simmtech stated in its complaint that Citibank explained its KIKO product as a hedging product suitable for managing risk caused by foreign exchange fluctuation, while it actually was quite a risky investment product. The company also argued that there were various unfair terms considering the contract period, the value of each option and selection on foreign exchange rate.