In contradiction to most of the retail FX trading world where brokers decided to "forgive" negative balances caused by the CHF crisis, Citibank is going after traders who did not have enough collateral at margin call. Citigroup Inc filed a lawsuit in a Manhattan federal court last Friday against a hedge fund founded by two former Goldman Sachs partners for $25 million because of their failure to cover a negative balance created by the SNB crisis. The prime brokerage bank accused Tormar Associates LLC of breach of contract for not paying the amount of collateral the hedge fund needed to bring its balance back to zero after a margin call. Tormar Associates is the firm of Ron Marks and John Tormondsen. Marks headed European government bond and interest rate swap trading at Goldman Sachs in London, while Tormondsen headed interest rate swap and government bond trading for Goldman Sachs in New York. After leaving Goldman to try their luck in the hedge fund sector for a few years, Marks and Tormondsen finally founded Tormar Associates in 2003. Marks, in a statement issued Wednesday, said the prime brokerage claims were “inaccurate” and returned the accusation to Citi for breaching contracts. “We intend to vigorously defend ourselves against this lawsuit and hold Citibank accountable for its improper conduct,” Tormar said. He additionally accused Citi of trying to pin the blame on Tormar for the prime brokerage’s “self-inflicted” losses. “Had Citibank taken an appropriate approach, as required by our agreements, and worked with us, neither Citibank nor Tormar would have suffered any losses, as the positions quickly and inevitably rebounded in value,” he said. Citigroup said the bank stood by its complaint and called the implication that it had acted inappropriately “baseless.” The bank explained that the CHF event had triggered an obligation by the hedge fund to deposit $29 million in additional funds, which it would not do. Tormar tried to unwind its position instead, going down eventually to minus $35 million. The firm now owes the bank $25 million as it only had $10 million in collateral that it had previously deposited, Citigroup said. - See more at: http://forexmagnates.com/citibank-s...-snb-flash-crash-losses/#sthash.a25CpE2W.dpuf
It will be quite interesting to follow this case to examine the details of the prime brokerage contracts.
Yes! Although this does not seem to be more than the typical of "you owe us" versus "your risk management should have stopped us from trading"
Agree, apparently there were contract specifics that allowed for different margining and collateral than standard practices. Interesting to see what is coming out of this.
Lol, if the fun in question does not come up with a better reasoning and factual backup then this case is lost before it enters any court rooms. Citi by "standard procedure" has any and every right like any other broker to demand immediate topping up of collateral to reflect the changes in valuations in trading positions. Arguing that "Citi had no right to liquidate the positions" is utter nonsense. They should have been happy Citi even called them up and gave them a chance to submit more funding. Usually their positions would just have been liquidated. Now the above is standard procedure. However, and that is what I was saying, if the fund can prove that Citi could have liquidated the position at better prices before eurchf reached 0.7x levels then they might have a case. As it reads from the article the fund has no such proof at the moment nor any reasonable line of reasoning. Adding to that they are former (current?) professionals, knowing full well Goldman would have never let a client slide into such negative balance without liquidating positions, I reckon the fund stands zero chance in court. They better settle. Another one bites the dust I reckon.
"neither Citibank nor Tormar would have suffered any losses, as the positions quickly and inevitably rebounded in value". Inevitably...LOL