(CN) - Citigroup executives are cutting themselves "exorbitant" paychecks despite the company's downward spiral in 2008, as well as its current poor performance, shareholders claim in a derivative action.
The multinational financial services corporation was bailed out to the tune of $45 billion by the U.S. government amid the 2008 global financial crises. The company accepted a handout of $25 billion under the Treasury Department's Capital Purchase Program and another $20 billion under the department's Targeted Investment Program.
"Only one other entity, Bank of America, received funds under TIP," plaintiff Jeanne M. Calamore claims. "'Too Big to Fail' and Citigroup were synonymous in 2008."
Calamore said the company rode that philosophy all the way home, CEO Vikram Pandit and Chief Risk Officer Brian Leach enacting an internal policy of "forgive and forget" following the bailout, awarding themselves and other executives and directors massive pay raises beginning in 2011.
According to the complaint, Pandit received over $38 million in 2008, on top of $37 million in stock awards and options, but only brought in a little over $128,000 in 2009 and worked for one dollar in 2010. His total compensation package in 2011 was worth almost $15 million, far too generous for a company that was revealed to have performed poorly that year, Calamore says.
"These awards were in direct contravention to the board's stated policy on executive compensation, which is based on pay-for-performance," the complaint states, adding that the board was "making up for lost time,' since 2011 was the first year the company was "not subject to TARP-related requirements governing the structure of executive compensation."
More than 165,000 shareholders rejected the compensation executives received in 2011, with the board allegedly failing to inform them whether it will change the pay structure in the future based on those voting results.
In the last two years, Citigroup stock has declined, falling from $47.25 per share in December 2010 to $26.30 per share just under a year later, a 44 percent decline. A report filed with the SEC on February 24, 2012 showed an increase in net income from $10.6 billion in 2010 to $11.1 billion in 2011, but Calamore says those numbers are inflated. The net income, according to the company's 2011 10-K form, was actually lower.
"The 2011 10-K revealed the company's revenues of $78.4 billion were down $8.2 billion, or 10 percent compared to 2010," the complaint states. "Excluding CVA/DVA, revenues of $76.5 billion were down $10.5 billion, or 12 percent."
In addition, Citigroup was one of four of the largest financial institutions in the U.S. to fail the Federal Reserve's "stress test," which is meant to test a company's ability to weather through a recession.
"Competitors such as JPMorgan Chase passed the test," the complaint states. "Because Citigroup did not meet the Federal Reserve's requirements, it remains precluded from paying dividends or repurchasing its shares."
The company's declining forturnes allegedly show clear "conscious and willful breaches of the fiduciary duties of good faith, fair dealing and loyalty that resulted in unjust enrichment of the company's executive officers and the irrational squandering of the company's assets, and cannot be dismissed as a good faith exercise of the board's business judgment."
The suit seeks restitution from the defendants, as well as damages and an order directing Citigroup to "reform and improve its corporate governance to comply with applicable laws and to protect the company and its shareholders from a repetition of the damaging events described herein."
Calmore is represented by Seth Rigrodsky of Rigrodsky & Long and Bruce Murphy.