'Terra' towns sue to recover losses

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Several townships in Norway have had to eliminate lots of public services since losing millions on a Citigroup investment program sold locally through now-bankrupt Terra Securities. Now the town leaders are suing Citigroup in an effort to recover some of their losses and be able to afford things like street lighting once again.

Local politicians in towns from Narvik in the north to Kvinesdal in the south were initially shocked, then embarrassed and finally angry when it became clear that hundreds of millions of taxpayer kroner they’d invested in Citigroup-backed mortgage securities had evaporated. What’s worse, some of the money they’d invested had been borrowed from Norway’s biggest bank, DnB NOR, secured by future energy revenues from local power plants. The town officials face having to repay loans taken out to finance securities that became worthless.

The civic leaders were accused of being everything from greedy to naive, for getting involved in investment schemes they didn’t understand. Now they’re fighting back, claiming that the risks involved were not clearly defined by either Terra Securities or Citigroup.

Lights out

The northern Norwegian townships of Narvik, Hattfjelldal, Hemnes and Rana invested NOK 451 million in 2007 in the US debt instruments that quickly went bad before the global finance crisis fully set in. The townships of Haugesund, Vik, Bremanger and Kvinesdal also suffered heavy losses. As a result, reports newspaper Aftenposten , Hattfjelldal has had to turn off its streetlights, Rana emptied its bank account, there’s no water in the town swimming pool in Vik and dozens of programs for the elderly, school children and within health care are under threat.

The townships’ investment advisers at Terra Securities in Oslo ended up filing for bankruptcy and now the administrator for what’s left of the company is spearheading the lawsuit against Citigroup, claiming that its product responsibility was seriously flawed. “You’re told you’re buying a financial product with certain features, but then it turns out the product doesn’t have those features,” said Terra’s administrator Jon Skjørshammer. “You’ve bought something that performed in a different way than its producer said it would.”

Citigroup defends itself

Citigroup has repeatedly denied all such claims, and now says the lawsuit lacks foundation. Citigroup officials say they are “certain” that all risks associated with its securities were indeed properly spelled out in material provided by Terra Securities. A Citigroup spokesman said the company will vigorously defend itself.

Terra’s administrator and the ailing townships have hired the US law firm Kasowitz, Benson, Torres and Friedman to pursue the case. Lawyer Marc Kasowitz, who also has represented real estate mogul Donald Trump and is known for raking in profits, said he thinks he has a good case against Citigroup, which he claims misled the townships. The lawsuit demands NOK 1.2 billion (around USD 200 million) in compensation from Citigroup. If successful, the law firm stands to earn millions itself.