Published June 20, 2009

Citi: Oei had net open position of US$6.8b

Defendant argues tycoon's charges in suit against bank were 'contrived afterthoughts'

By JAMIE LEE

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CITIBANK has denied claims by prominent tycoon Oei Hong Leong that he was misled into losing some US$518 million from foreign exchange trades.

MR OEI Suing Citibank, alleging that he incurred losses due to its conflicting margin surplus reports

In what could shape up to be Singapore's single largest misrepresentation suit in the wake of last year's minibond saga, the bank claimed, in court documents, that Mr Oei was a 'highly sophisticated' investor and was responsible for making all his investment decisions.

The bank also alleged that the estimated losses claimed by Mr Oei are inaccurate because they do not factor in certain premiums that he received from writing options.

Mr Oei - who is claimed by Citibank to have held a net open position as big as US$6.89 billion in February 2008 - is suing the bank, alleging that it gave him conflicting reports of his margin surplus, forcing him to unwind his trades 'at an adverse time' and thereby incur a loss.

Mr Oei, who is no longer a private banking customer of Citibank, also said the bank should not have included an estimated US$50 million deposit from a company known as International Capital Investments Ltd (ICIL) - of which Mr Oei and his wife own 97.5 per cent - as part of his margin surplus because this had not been pledged or charged as security.

With the inclusion of the US$50 million last September, Mr Oei said his margin surplus ballooned to a 'comfortable' level that was usually 'in excess of US$200 million' over the following three weeks.

This allegedly led Mr Oei to enter into foreign exchange contracts worth over US$1 billion in trades between Sept 16 and Oct 6 last year 'that he would not otherwise have entered into'.

On Oct 21, Mr Oei claimed, he was asked to sign a document 'out of the blue' that would allow him to pledge the ICIL deposit, but he declined because although he and his wife had a significant stake in ICIL, there were minority shareholders.

Mr Oei said that following this, he was told that his margin surplus had become a shortfall of around US$80 million and that he was not aware that this was because the ICIL deposit was no longer used as collateral.

In addition, his margin shortfall began fluctuating soon after. Mr Oei claimed that this was 'incomprehensible' and a matter of negligence, arguing that there were lapses in the bank's tracking system.

But the bank claimed that it had informed Mr Oei on Oct 27 that the ICIL deposits - which created a trading line of up to 20 times the deposit's value - would no longer be used as collateral.

The bank also claimed that all margin surplus or shortfall figures were estimates it used for discussion purposes only and that these 'might not be complete and accurate'.

Citibank described Mr Oei's claims of flaws in the bank's tracking system as 'contrived afterthoughts'.

Mr Oei had also alleged that Deepak Sharma - chief executive for Global Wealth Management for Asia and the Middle East - had asked him on Oct 29 to unwind his foreign exchange positions and reduce his exposure further.

But Citibank claimed that while Mr Sharma said that Mr Oei had to bring down his margin shortfall, 'at no point' did Mr Sharma state that Mr Oei had to exit from his outstanding positions.

Mr Oei also alleged that the bank had caused him to lose money after it failed to execute US$600 million worth of orders for US Treasury 30-year bonds last November to cover uncovered call options he had written. This was prompted by his concerns about the 'possibility of the assassination' of US President-elect Barack Obama, which would create 'a substantial drop in yields' of the bonds.

But in its filing, Citibank claimed that it 'never undertook an absolute duty to successfully execute any limit order' placed by Mr Oei, adding that he had been placing orders at prices below where the bonds were trading.

In response to Citibank's filing, Mr Oei's lawyer, Quek Mong Hua of Lee & Lee, was quoted by Bloomberg as saying: 'We're in the process of studying the defence and will consider whether it's necessary to file a reply.'