Opening the way for more S. Korean firms to sue in the US

Posted on : 2016-03-15 17:37 KST Modified on : 2016-03-15 17:37 KST
Simmtech suing Citibank Korea in the US for damages for losses related to Citibank derivatives
A lawsuit briefing session by the Korean Corporate Recovery Support Association (KOCOTA) and the law firm Logos held in the Logos seminar room in the Gangnam district of Seoul. The session was about filing lawsuits in the US about the KIKO case. (by Kim Tae-hyeong
A lawsuit briefing session by the Korean Corporate Recovery Support Association (KOCOTA) and the law firm Logos held in the Logos seminar room in the Gangnam district of Seoul. The session was about filing lawsuits in the US about the KIKO case. (by Kim Tae-hyeong

South Korean small companies that lost money after investing in a derivative offered by Citibank Korea called “knock-in and knock-out” (KIKO), a foreign exchange hedge, will now have the option of filing lawsuits in the US, which could enable them to find relief for their losses.

South Korean SMEs that signed KIKO contracts with banks just before the global financial crisis in 2008 in order to minimize risk related to changes in the foreign exchange rate suffered around 3 trillion won (US$2.52 billion) in losses.

On Mar. 14, the Korean Corporate Recovery Support Association (KOCOTA) and the law firm Logos held briefing session on the lawsuits in the Logos seminar room in the Gangnam district of Seoul. The session was about filing lawsuits in the US about the KIKO case.

A US district court had ruled that it had no jurisdiction in a lawsuit that South Korean company Simmtech filed against the main office of Citibank, but on Feb. 23, the US Court of Appeals for the Second Circuit in New York, overruled that decision and remanded the case to the district court. This ruling opens the door for South Korean companies to file lawsuits against the main office of Citibank in US courts, the session organizers said.

“The US appeals court concluded that there were sufficient grounds to support Simmtech‘s argument that the Citigroup main office was involved,” said Kim Bong-jun, an attorney with Kim & Bae, the law firm that is representing Simmtech in the US. “We will be using discovery to request all of the documents that were exchanged between Citigroup and Citibank Korea, which will take the KIKO lawsuit to a different stage from before.”

Discovery refers to a system under which, prior to a lawsuit, the parties involved can peruse all of their opponents’ internal documents that are connected with the case.

“Financial authorities in the US and the UK have imposed massive fines on Citibank and Deutsche Bank for unfairly profiting from exchange-rate manipulation. Since the timing of Citigroup’s sale of KIKO products to Korean companies coincides with the timing of its manipulation of exchange rates, it is possible that Citibank sold KIKO products to Korean companies while it was manipulating exchange rates,” Kim said.

“If Korean companies had known that Citigroup was a financial company that was meddling in exchange rates, they would not have signed KIKO contracts with Citibank Korea. Selling them KIKO products without informing them of this fact is equivalent to fraud,” Kim added.

Simmtech, which manufactures circuit boards for semiconductors, is highly dependent on exports. This past 2006, the company signed a two- or three-year KIKO contract worth US$600 million with Citibank Korea, which explained that the derivatives were supposed to hedge against the risk of currency volatility.

When the company lost US$73 million because of the spike in the won-dollar exchange rate after the financial crisis, the company filed a lawsuit in Aug. 2013 in the US against the main office of Citibank and five other affiliates of Citigroup, asking for US$80 million in damages.

In Feb. 20015, the New York Southern District Court, which was responsible for reviewing the case, dismissed it on the grounds that the US did not have jurisdiction, but this ruling was overturned by the appeals court.

Citigroup received its first fine in the UK in Oct. 2013. Assuming that this was the beginning of the period when damage lawsuits may be filed, South Korean companies that signed KIKO contracts with Citibank should be able to file lawsuits through Oct. 2016, Kim explained.

By Yoon Young-mi, senior staff writer

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