“IMPORTANCE OF LEGAL ASPECT OF CORPORATE GOVERNANCE IN CASE OF FINANCIAL CRISIS” BY - SAURABH KHALI
“IMPORTANCE OF LEGAL ASPECT OF
CORPORATE GOVERNANCE IN CASE OF FINANCIAL CRISIS”
AUTHORED BY
- *SAURABH KHALI,
ICFAI Law
Enrollement no =
23FLPCDDD01013
ABSTRACT
This
Article uses recent events and litigation involving Citigroup to ask whether
corporate law as created and enforced by state legislatures and courts-such as
the legislature and courts of the State of Delaware-is capable of reducing the
possibility of a replay of the recent financial crisis. Specifically, after
presenting the events at Citigroup as a case study demonstrating the excessive
risk-taking activities of financial institutions, this Article outlines
generally the tools available to the law to limit the sort of excessive
risk-taking that occurred at Citigroup and elsewhere. These tools include
regulation of business activities, capital requirements, rules for executive
compensation, imposing liability on directors and officers for unreasonable
risks, and rules governing the selection of directors and officers. This
Article then divides these tools into those addressed by banking law
(regulation of business activities and capital requirements), and those for
which state corporate law plays a role (compensation limits, personal liability
for unreasonable risks, and director and officer selection). This Article then
uses the results from the recent Citigroup litigation as a case study in the
limited willingness of state legislatures and courts to use the important tools
allocated, at least in part, to corporate law to curb excessive risk-taking by
financial institutions. Specifically, the article contrasts the weaker
standards and application for finding directors and officers liable for their
inattention to risk in Citigroup with the probable analysis under a banking law
or other regulatory regime. This Article also explains why this result is
inherent in a regime in which directors and shareholders select which state's
corporate law will govern. The article concludes with a discussion of normative
implications.
INTRODUCTION
Corporate governance has become a key
topic in international practice and economic and legal theory. The definitions
of corporate governance vary. Corporate governance is certainly not just
corporate law. The short-form definition used by the Cadbury Commission in
1992 is to the point and internationally agreed upon: Corporate governance
refers to ‘the system by which companies are directed and
controlled’. Direction and control can come from inside or outside.
Internal corporate governance refers to government and control by the organs of
the corporations, the board in the one-tier system or the management and
supervisory boards in the two-tier system. Accordingly, it is hardly
astonishing that much of the corporate governance literature deals with the
board. External corporate governance can be understood as the disciplinary
effects exercised in particular by the takeover market on the directors but
also, to a certain degree, effects exercised by the markets for directors,
products and services. External corporate governance is weaker for
financial institutions than for corporations in general since there is no
well-developed market for corporate control as regards financial institutions.
Until recently, takeovers did not have a significant corporate control effect
for banks, at least not in Europe. Yet under the pressure of
globalization, shrinking returns, digitalization and in particular fierce
competition from non-bank institutions, this may change soon.[1]
Other Varieties of Corporate Governance for Other
Enterprises and Sectors (Non-listed, State-owned, Non-profit, Insolvency,
Banking and Insurance)
Corporate governance was first
developed as a concept and field of research for private listed corporations.
This was due to the self-regulatory efforts of stock exchanges and other
private institutions that either had certain requirements for admission or set
up recommendations on good corporate governance, usually with corporate
governance codes, sometimes with the help of the comply or explain-principle
set up by legislators. The idea of developing corporate governance standards
spread quickly to other sectors, such as to non-listed companies (among them in
particular family companies, state-owned enterprises (SOEs)
with public corporate governance codes, non-profit organizations and
foundations), insolvent companies and companies in serious financial crisis;
the notion of corporate governance was also extended to banks, insurance
companies and other financial institutions such as rating agencies. While
corporate governance principles for listed corporations have been and are still
a major source of inspirations for corporate governance in these other sectors,
there is very little cross-fertilization as regards the corporate governance
efforts in these other sectors. Therefore, this article basically compares the
governance of financial institutions—with banks taken as an example—with
general corporate governance, and it will make the point that the corporate
governance of banks is different in many respects.
‘Banks are
Special’: Particular Economic Features of Banks and Other Financial
Institutions
The Basel Committee on Banking
Supervision, the world’s leading authority on banking regulation and banking
supervision, begins its 2015 Guidelines on Corporate Governance Principles for
Banks with the words:[2]
‘Effective corporate governance is critical to the proper functioning of the
banking sector and the economy as a whole.’ The corporate governance of
banks and other financial institutions has gained much attention after the
financial crisis. From 270 economic and legal submissions from 2012 to
2016 in the ECGI Working Paper Series of the European Corporate Governance
Institute (ECGI), roughly half address corporate governance questions, and more
than a quarter of these look at the regulation and corporate governance of
banks (in the broad sense). The financial crisis certainly contributed to
this, yet whether the financial crisis can really be attributed mainly to
financial institutions’ shortcomings in corporate governance, as some authors
assert, is doubtful.
In theory, practice and supervision,
it is a truism that banks are special as compared to non-banking institutions.
This is the very basis for the targeted regulation and supervision of banking
as a regulated industry. The unique aspects of banks include the very low
capitalization of banks as compared to non-banking entities (particularly when
short and long financial maturity periods are matched); the complexity and
non-transparency of banks’ business activities and structures; the fundamental
need for trust and the associated danger of bank runs; and in particular the
macroeconomic function of banks as manifested in their central importance for
the economy, which in turn gives rise to their being subject to far-reaching
legislation and state regulation.Footnote17 Their uniqueness is reflected
in frequently recurring banking crises and the structural flaw whereby banks
are seen as ‘too big to fail’ and ‘too interconnected to fail’, such that state
rescue is needed whenever a bail-in is either not an option or proves
ineffective. One cannot dispute that these unique characteristics are of
course of particular importance for systemically important banks (SIFIs). But
they are not limited to such entities. Instead these attributes are of more
general relevance, even if they are naturally more consequential and visible in
the case of SIFIs.
It is hardly astonishing that these
special characteristics of banks demand, in turn, a special variety of
corporate governance. Yet what is surprising is that particular attention to
this has traditionally been absent and that economic research as to the special
governance of banks has commenced relatively late[3].
One of the earliest contributions to the field dates from the
1980s. Several factors seem to have contributed to this delay in research.
Empirical studies, found mostly in US academic literature, usually focused on
the principal-agent dilemma and were oriented on the conflict between directors
and shareholders, this corresponding to the US shareholder structure (mostly
dispersed shareholdings and relatively few major
block-holdings). Consequently, given this focus and in accord with the
available data, the natural object of inquiry tended to be publicly-traded
companies. Even where banks were the topic of inquiry, earlier studies focused
on principal-agent theory as framed by studies in non-banking contexts. By
contrast, empirical studies looking specifically at corporate governance in the
banking context—and demonstrating the unique characteristics which ensue—are
only a more recent development. In the context of this present paper, only a
few important findings can be discussed.
Fahlenbrach and Stulz report
that worse results were achieved by bank CEO’s whose actions were primarily
motivated by shareholder interests. Similar findings were reached by Beltratti
and Stulz as regards bank boards. Banks with shareholder-friendly boards
had significantly poorer results. According to other studies, the composition
and characteristics of bank boards had significant effects, and boards
with relatively higher shareholder representation undertook more and greater
risks. Apparently bank boards charted a course more aligned with the
preferences of shareholders, who—if sufficiently diversified in their
holdings—embrace risk more readily than, for instance, a bank’s
creditors. Beltratti und Stulz thus doubt the hypothesis that bad
corporate governance was a significant cause of the financial
crisis. Banks with independent boards were run more poorly. Banks that were controlled by shareholders saw
higher profits before the crisis as compared to banks that were controlled by
directors. Enterprises in which institutional investors held stocks
correspondingly fared worse. In general, studies showed that the
shareholder structure of a bank correlated strongly to the bank’s insolvency,
particularly where low-level management was significantly involved in the decision-making
process.[4]
These and further empirical studies
suggest that it is erroneous to conclude that traditional—even if empirically
established—approaches to the corporate governance of corporations can be
seamlessly applied to the corporate governance of banks; in fact, exactly the
opposite may be true. This is the case, for example, as regards director
independence, which according to recent studies can carry negative effects also
in the case of non-financial corporations, whereas expertise and experience
are of much greater value[5],
at least when obvious conflicts of interest are avoided. Still, it bears
emphasis that sound judgment is called for when evaluating empirical findings.
Often, findings warranting a differentiated assessment are held up against one
another despite their embodying nuanced differences that may reflect a
dissimilar time horizon in the studies, an inadequate account of the
interdependence of certain factors and, above all, country- and path-dependent
differences resulting from legal regulation and cultural circumstances.
Governance of Banks and Financial
Institutions in Supervisory Law and Practice
The Basel Committee on Banking
Supervision: The Guidelines, Corporate Governance Principles for Banks, 2015
The Basel Committee has issued the
authoritative Guidelines on Corporate governance principles for banks, released
in a revised version in July 2015. The Guidelines, while underlining the
jurisdictional differences and the necessity of proportionality and differences
in governance approaches, set out 13 major principles in respect of banks’
corporate governance. They concern (1) The overall responsibilities of boards,
(2) Board qualification and composition, (3) The structure and practices of
boards, (4) Senior management, (5) Governance and group structures, (6) Risk
management functions, (7) Risk identification, monitoring and control, (8) Risk
communication, (9) Compliance, (10) Internal audits, (11) Compensation, (12)
Disclosure and transparency and (13) The role of supervisors.[6]
This list sounds familiar to someone who is accustomed to dealing with
corporate law and corporate governance, though already at first glance
Principle 4 on senior management and Principle 13 on the role of supervisors
are special for bank governance. As in corporate governance of non-banking
entities, the board is at the center of the attention. But the demands on its
composition, qualification, responsibilities and practices are much higher than
for non-bank corporations. The risks a bank runs are of course very special.
Accordingly the requirements concerning the bank board’s governing and
controlling functions are spelt out in considerable detail and are much more
demanding. So are the disclosure and transparency requirements. It is
interesting to see that a special principle is devoted to the governance of
group structures, groups of companies being subject to special legal treatment
in only some countries (like Germany), while in others they are not recognized
as a special area in corporate law and governance. The Guidelines do not
have the character of legally binding norms, but they spell out in detail what
rules banks should observe.
Principles and Guidelines of Other Supervisory
Institutions (European Banking Authority 2016/17, the Financial Stability Board
2017 and Similar National Supervisory Agencies In and Outside of the European
Union)
The crisis resulted in many other
international institutions adopting recommendations, supervisory measures and
regulations in the area of corporate governance as regards the banking
industry. Though scarcely addressed by academic authors, many of these
instruments and schemes are now in their second or even third generation, e.g.
the Guidelines on internal governance of the European Banking Authority (EBA)
of 2017, the Joint ESMA and EBA Guidelines from 2017, the report of the
Financial Stability Board (April 2017), the Guidelines of the European
Central Bank of 2018—and those of similar national supervisory agencies, for
example the Swiss FINMA (September 2016) or the German Federal Financial
Supervisory Agency (BaFin 2016/2017)—and for the insurance companies the
International Association of Insurance Supervisors (November 2015).[7]
CRD IV, National Bank Supervisory Laws, Legal and
Policy Analyses
The concepts and recommendations of
the Basel Committee made their way not only into the principles and guidelines
of other international and national supervisory institutions, but also into the
bank supervisory law of the Member States of the European Union via the Capital
Requirements Directive (CRD IV). Further, via the Solvency II
Directive, they entered similarly into the Member States’ supervisory law
of insurance companies.
Accordingly, as to the academic
literature, much of it is just a doctrinal legal presentation and a
commentary-like treatment of the actual supervisory law in the various Member
States. A significant amount of the literature deals with the European law in
the CRD IV—as well as in Solvency II and regarding its implementation for
insurance supervision—looking particularly at supervisory boards/boards of
directors/CEOs, most of it purely de lege lata, but at times
based more on functional legal policy considerations. It is true that there are
some authors who question the whole approach of the Basel III regulation, but
this is due to fundamentally different views towards regulation. In any
case, there is criticism of over-regulation as voiced by the industry, and a
large number of academic authors rightly join in the latter’s complaints. The
provisions drafted by legislators, supervisory agencies and international
bodies are
indeed increasingly detailed; while these provisions are, legally speaking,
only persuasive in nature, they are de facto more or less binding. Yet despite
often being adopted in the wake of corporate scandals and while frequently
tending to overshoot the target, regulation remains both unavoidable and
indispensable.[8]
The interplay between stock
corporation law, bank supervisory law and insurance supervisory law in
corporate governance is considered more rarely. Yet there is a basic
agreement on the necessity of taking note of the similarity of supervisory
problems in the separate fields as well as of trying to harmonize rules
whenever the problems are functionally similar, while maintaining different
rules and regulations when the risks and features are different. Cross-sectoral
regulation is needed. Some have rightly observed that a European bank
corporation law is gradually developing in its own right, and these authors ask
what effect the European banking union will have on the governance of credit
institutions[9]. Corporate
governance of banks may even pave the way to a self-contained law covering
financial intermediaries and their corporate governance.
Shareholder, Stakeholder or
Creditor Governance: The Controversies Regarding the Purpose of Corporations
and Banks
Shareholder
or Stakeholder Governance: The German Experience and the American and European
Discussion on the Purpose of Corporations
The purpose of corporations is an old
and controversial topic. The classic approach is the one that prevails in the
United States: the purpose of a corporation is to make profit for the
shareholders. On the other side of the spectrum stands Germany[10].
There, the board is responsible to promote the interests of all stakeholders,
i.e. the shareholders, labor and the public good. While the
shareholder-oriented approach had gained some attention also in Germany before
the financial crisis, the traditional stakeholder concept is still generally
agreed upon. The labor interest is even further consolidated by the mandatory
labor co-determination at parity in the supervisory board. Other European
states, such as the United Kingdom, follow a middle way with the so-called
enlightened shareholder approach, a shareholder orientation that also looks at
the interests of other stakeholders in view of preserving a long-term
profitability of the firm (Europe). But in the United Kingdom this concept
is increasingly criticized as too vague and hardly effective. It is of note
that most recently even in the United States there has been a tendency towards
having more regard for the full spectrum of stakeholders’ interest, as
promulgated by the business roundtable statement in 2019. Yet whether this
non-binding declaration of many American business leaders will really amount to
a change in practice remains to be seen. In any case, in times and terms of
financial rescue and insolvency proceedings, it has been recognized that risk
together with governance (‘ownership’) is transferred from the owners to the
creditors.[11]
Towards Creditor or Debtholder Governance for Banks
As regards bank corporations and
financial institutions, the case is clearly different. Empirical findings, the
experience of the financial crisis, and economic and legal conclusions have
produced a change in perspective that amounts to a theory of creditor (i.e.
debtholders and depositors) governance. The Basel Committee on Banking
Supervision’s benchmark guidelines, the Corporate Governance Principles for
Banks from July 2015, state at the very beginning: ‘The primary objective of
corporate governance should be safeguarding stakeholders’ interest in
conformity with public interest on a sustainable basis. Among stakeholders,
particularly with respect to retail banks, shareholders’ interest would be
secondary to depositors’ interest.’ This corresponds to the standing
supervisory practice of other national and international banking agencies too.[12]
This position is a clear rejection of
the shareholder primacy view, but it differs also from the only slightly
tempered view held in Europe, since banks are expected to consider creditor
interest not only when this is in the long-term interest of the
corporation. Creditor governance is not just a question of the purpose of
bank corporations, instead having consequences in many other areas regarding
the corporate governance of banks. In particular this view reduces also the
relative importance of controlling shareholders, institutional investors and
shareholder control in general, as is presently the center of attention in the
corporate governance of (non-bank) corporations
Basics of Corporate
Governance
Corporations
Corporations are a group of consensual, contractual relations among
several constituencies.[13]
Corporate
charter (or Articles of incorporation):
This is an agreement between the “corporation” and “state” in which it is
incorporated as to how the corporation will be run; this includes:
·
Authorized shares of the corporation.
·
Corporation’s name.
·
Corporation’s purpose.
·
In return, the corporation pays franchise tax to state
based on authorized capital of the company.
·
A corporate charter may be amended after they are
originally filed by incorporators by the majority or super-majority vote of
shareholders.
·
For public companies, vote requires:
·
Proxy filing with Securities and Exchange Commission
(SEC)
·
Hiring of proxy solicitor to encourage shareholders to
vote their shares
By-laws
·
The main purpose of by-laws is to “Fill the gaps” left
by the charter.
·
They address board elections and composition, the
appointment of officers, timing and conduct of corporate annual meetings, etc.
·
By-laws may be amended by the board if permitted by
the state of incorporation and charter; otherwise, it is amendable by
shareholders.[14]
Board of directors
·
The board of directors are elected by shareholders at
the annual stockholders’ meeting.
·
Each share is generally entitled to one vote per
director unless there is cumulative voting or multiple classes of stock.
·
The winner of the voting is decided based on simple
majority and hence the director who obtains the most votes wins.
·
Directors are expected to maximize the value per
share.
Directors’ Fiduciary Duties
·
Directors have two duties to shareholders under the
law:
Duty of care
1.
Director must act in good faith and strive to exercise
ordinary prudential care in making business decisions through processes
2.
“Business judgment rule”: the presumption is in the
favor of the director’s decision-making even if the expected results of the
decision are not realized.
3.
“Total fairness standard”: if the director has a
conflict of interest, he/she must prove that his/her decision was fair to all
parties.[15]
Duty of loyalty
1.
A Director must act in the best interests of the
corporation and not do things that harm the corporation.
2.
The Director cannot compete directly with the
corporation unless the other directors have expressly permitted the competing
enterprise.
3.
Failure to adhere to these two duties may lead to
personal liability one part of the director.
Daily Governance of Corporation
Chief executive officer (CEO)
1.
The board recruits and hires the CEO to run the
day-to-day operations.
2.
The CEO serves as the management’s representative to
the board and is frequently the same person as chair of the board.
3.
The CEO hires a management team (chief financial
officer, chief marketing officer, and other “C-level” executives)
4.
The board holds the CEO accountable for the
corporation’s operating performance and the stock price performance.
Managers have fiduciary duties of care and loyalty that
prohibit them from:
1.
Competing with their employer
2.
Appropriating business opportunities
3.
Misappropriating corporate trade secrets and confidential
information
Consequences for breaching duties to corporation:
1. Managers
may be sued personally.
2. Manager’s
employment may be terminated.[16]
Sarbanes-Oxley Act
1. The
management of public companies is responsible for structuring corporation with
adequate “internal controls” so that the company has integrity in its financial
reporting and other processes.
2. The
corporation must report any deficiencies in and status of its internal controls
in its public filings with the SEC.
3. This
process provides current/prospective shareholders with a view on the
perilousness of corporation’s internal management systems.
CONCLUSION
Banks are special, and so is the corporate governance of banks and
other financial institutions as compared with the general corporate governance
of non-banks. Empirical evidence, mostly gathered after the financial crisis,
confirms this. Banks practicing good corporate governance in the traditional,
shareholder-oriented style fared less well than banks having less
shareholder-prone boards and less shareholder influence. The special governance
of banks and other financial institutions is firmly embedded in bank
supervisory law and regulation. Starting with the recommendations of the Basel
Committee on Banking Supervision, many other supervisory institutions have
followed the lead with their own principles and guidelines for good governance of
banks. In the European Union, this has led to legislation on bank governance
under the so-called CRD IV (Capital Requirements Directive), which has been
transformed into the law of the Member States. The legal literature dealing
with this is mostly doctrinal and concerned with the national bank supervisory
law. But there are also more functional legal as well as economic
contributions, these addressing primarily, but not exclusively, systemically
important financial institutions. The latter are under a special regime that
needs separate treatment.
Most recently there has been intense discussion on the purpose of
(non-bank) corporations. Shareholder governance and stakeholder governance have
been and still are the two different prevailing regimes in the United States
and in Europe, particularly in Germany. Yet for banks this difference has given
way to stakeholder and, more particularly, creditor or debtholder governance,
certainly in bank supervision and regulation.
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[1] Benjamin W. Heineman, Jr.,
Shareholders: Part of the Solution or Part of the Problem?, THE ATLANTIC, Oct.
28, 2009, available at
http://www.theatlantic.com/politics/archive/2009/10/shareholders-partof-the-solution-or-part-of-the-problem/29188/
[2] Norton, supra note 41, at 1313;
MUlbert, supra note 37 at 14. Adjusting the capital requirements for the
riskiness of the bank's assets should decrease this incentive (id)-albeit, this
increases the complexity problem with capital requirements
[3] ALFRED M. POLLARD & JOSEPH P.
DALY, BANKING LAW IN THE UNITED STATES § 11.02 (3rd ed. 2009).
[4] William W. Bratton & Michael
Wachter, The Case Against Shareholder Empowerment, 158 U. Pa. L. Rev. 653,
704-709 (2010)
[5] Frank H. Easterbrook & Daniel
R. Fischel, The Corporate Contract, 89 COLUM. L. REV. 1416 (1989). But see
Melvin A. Eisenberg, The Structure of Corporation Law, 89 COLUM. L. REV. 1461,
1480 (1989) (arguing that mandatory rules should govem some aspects of public
corporations, such as fiduciary duties).
[6] Richard A. Posner, Capitalism in
Crisis, WALL ST. J., May 7, 2009, at A 17, available at
http://online.wsj.com/article/SBl24165301306893763.html. One might also ask
whether the self-interest of the financial institution's creditors will lead
creditors to prevent the institution from taking excessive risk. Writers
sometimes blame deposit insurance for creating moral hazard by removing the
insured depositors' incentive to monitor banks against dangerous risk-taking.
E.g., Jonathan R. Macey & Maureen O'Hara, The Corporate Governance of
Banks, 9 FRBNY EcON. POL'Y REv. 91, 98 (2003) available at
http://www.newyorkfed. org/research/epr/03v09nl/0304mace.html. The problem, of
course, is that the threat of a bank run by illinformed depositors, who might
be reacting as much to the danger of the run as they are to poor investments of
the bank, seems a crude tool to discourage excessive risk-taking that the
depositors will be the last people to discover. E.g., Peter 0. Milbert,
Corporate Governance of Banks 10, 13 (ECGI - Law Working Paper No.130, 2009),
http://ssm.com/abstract=1448118. For an explanation as to why bondholders in
the bank lack sufficient incentives to address excessive risk-taking, see
Bebchuk & Spamann, supra note 33, at 268-71
[7] Joseph E. Stiglitz, Multinational Corporations:
Balancing Rights and Responsibilities, 101 AM. Soc'Y OF INT'L L. PROCEEDINGS 3,
45-46 (2007).
[8] John Cassidy, An Economist's
Invisible Hand, WALL ST. J., Nov. 28, 2009, at W3, available at
http://online.wsj.com/article/SB10001424052748704204304574545671352424680.html.
[9] Franklin A. Gevurtz, Getting Real
about Corporate Social Responsibility: A Reply to Professor Greenfield, 35 U.C.
DAVIS L. REV. 645 (2002)
[10] Id. at 683-84 (pointing to the
Delaware Supreme Court's decision refusing to find liability upon inattentive
directors in Graham v. Allis Chalmers Mfg. Co., 188 A.2d 125 (Del. 1963), as
evidence of the Delaware Supreme Court's seeking to attract corporate charters)
[11] This observation is commonly known
as the "Berle-Means thesis" after the authors of the classic work
which pointed out the phenomenon. See ADOLPH A. BERLE & GARDINER C. MEANS,
THE MODERN CORPORATION AND PRIVATE PROPERTY (1932).
[12] William Cary, Federalism and
Corporate Law: Reflections Upon Delaware, 83 YALE L.J. 663 (1974).
[13] Martin Lipton, Risk Management and
the Board of Directors, HARV. L. SCH. FORUM ON CORPORATE GOVERNANCE AND FIN.
REGULATION, Dec. 17, 2009, http://blogs.law.harvard.edu/corpgov/
2009/12/17/risk-management-and-the-board-of-directors-2/#more-5811 (referring to
proposals before Congress to require independent risk committees responsible
for the establishment and evaluation of risk management practices to be formed
at large financial companies)
[14] CARL FELSENFELD, BANKING
REGULATION IN THE UNITED STATES 77-78 (2d ed., Juris Publishing, Inc. 2006)
[15] Id (Citigroup CEO Charles Prince
never questioned the risk entailed in Citigroup's CDO operation before an
emergency meeting when it was too late to avoid huge losses, because no one had
warned him); Eric Dash, Citigroup Director Expected to Quit Key Committee, N.Y.
TIMES, Apr. 8, 2008 (reporting on pressure for the chairman of the Audit and
Risk Management Committee of Citigroup's board of directors to resign for
failing of oversee Citigroup's risk management practices, and that, according
to people familiar with the matter, some Citigroup directors were not aware of
Citigroup's CDO loss exposure until huge write-downs started piling up).
[16] Citigroup, 964 A.2d at 113 (for
example, Citigroup, in a couple major transactions in 2007, acquired billions
of dollars worth of subprime loans from financially troubled subprime lenders
to package into CDOs).