KIKO damage claim in New York(NY), Simmtech Corp. vs. Citibank N. A., seems to have great influence on related domestic KIKO case, as NY Supreme Court gets into formal trial. With such U. S. litigation against Citibank came a turning point in other KIKO cases regarding SC bank.
Upon the stage of NY, it is necessary to prove relevance between Citibank of Korea Incorporate(CKI)’s KIKO transaction in Republic of Korea and the Citibank N. A., which is not handled in domestic litigation. Simmtech Corp. held Citibank N. A. responsible for taking part in not only development but also illegal sales of KIKO product through CKI, which functions as branch of Citibank N. A. in the aspect of governance structure.
According to complaint filed in NY Supreme Court, Simmtech Corp. pointed out that △ Citibank N. A. developed KIKO product and benefited from the sale of it △ CKI, stakeholder in KIKO dealing, took the role as ‘calculation agent’ who is supposed to properly arrange price or condition of the product in neutral position △ Citibank N. A. provided contract form in English while selling the product in Republic of Korea, which caused difficulty in Simmtech Corp.’s understanding.
Upon improving participation of Citibank N. A. in KIKO transaction, Simmtech Corp. stated below as evidences. Firstly, KIKO or KIKO related products had been sold simultaneously in Republic of Korea and other developing countries such as India and Brazil. In addition, KIKO related executive who faced sanction of Korean financial authorities had been dispatched from Citibank N. A.. Simmtech Corp. also made emphasize on the profit flow from CKI to Citibank N. A.. CKI had insisted in Korean lawsuit that “profit CKI earned from KIKO is not that much because of its counter-hedging with other transaction.” Simmtech Corp.’s primary reasoning is that if it is proven CKI counter-hedged KIKO risk with Citi Bank N. A., then it can be said for sure that Citi Bank benefited from KIKO product.
Under U. S. legal procedure, which is quite different from Republic of Korea’s, Simmtech Corp. could take advantage of Discovery. It allows Simmtech Corp. to make Citibank submit evidence materials including e-mail and computer HD. Also, Simmtech Corp. is able to interview Citibank’s person in charge through discovery. Citibank is obliged to stand burden of losing, unless accurately handing documents alleged by Simmtech Corp over.
Attorney Wi In Gyu, who represents Simmtech Corp. in Republic of Korea, explains that “Until now, Citibank have resisted to submit documents regarding theoretical price of each option and evaluation of KIKO product in domestic litigation. However, if those materials are disclosed in the U. S. court, Simmtech Corp. could seize the chance of victory.” Furthermore, it is favorable for Simmtech Corp. to set out a legal argument using ‘calculation agent’, not familiar with Korean legal system.
Grounds for Simmtech Corp. in this legal suit are, △ Citibank’s fraud imposing hidden fee under the name of ‘Zero-Cost’, △ Promoting ‘speculative foreign exchange product’ to an enterprise in need of ‘hedging equipment’ (breach of suitability doctrine), △ Intentionally omitting the explanation regarding profit structure of KIKO product based on zero-sum game(conflict of Interest).
As MK requested Citibank N. A. in NY for explanation concerning Simmtech Corp.’s argument, Citibank expressed its stance saying “Citibank is prepared for compelling response along with the procedures.”
Considering the issue of correlation between CKI and Citibank N. A., Achilles tendon in U. S. litigation, chance of dismissal cannot be ignored. An anonymous attorney insisted that “Simmtech Corp.’s arguments are all grounded by circumstantial evidences. In other words, specific materials are missing.”
Explanation for Word
KIKO (Kock in Knock out) product: KIKO, developed by bank, is the foreign exchange(FX) derivative for hedging the hazard of FX rate fluctuation. Export Companies had joined this product on the purpose of preparing for bullish tendency of Won from 2006 to 2008, but as the KR Won/US Dollar rate has sky-rocketed under the influence of financial crisis, export companies have made huge losses.
[Yong Bum Park, Reporter / Jung Hong Jeon, Reporter]