Citigroup Inc filed a lawsuit in a Manhattan federal court last Friday against a hedge fund founded by two former Goldman Sachs partners for $25 million because of their failure to cover a negative balance created by the SNB crisis.
The prime brokerage bank accused Tormar Associates LLC of breach of contract for not paying the amount of collateral the hedge fund needed to bring its balance back to zero after a margin call.
Tormar Associates is the firm of Ron Marks and John Tormondsen. Marks headed European government bond and interest rate swap trading at Goldman Sachs in London, while Tormondsen headed interest rate swap and government bond trading for Goldman Sachs in New York. After leaving Goldman to try their luck in the hedge fund sector for a few years, Marks and Tormondsen finally founded Tormar Associates in 2003.
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Marks, in a statement issued Wednesday, said the prime brokerage claims were “inaccurate” and returned the accusation to Citi for breaching contracts. “We intend to vigorously defend ourselves against this lawsuit and hold Citibank accountable for its improper conduct,” Tormar said.
He additionally accused Citi of trying to pin the blame on Tormar for the prime brokerage’s “self-inflicted” losses. “Had Citibank taken an appropriate approach, as required by our agreements, and worked with us, neither Citibank nor Tormar would have suffered any losses, as the positions quickly and inevitably rebounded in value,” he said.
Citigroup said the bank stood by its complaint and called the implication that it had acted inappropriately “baseless.” The bank explained that the CHF event had triggered an obligation by the hedge fund to deposit $29 million in additional funds, which it would not do. Tormar tried to unwind its position instead, going down eventually to minus $35 million. The firm now owes the bank $25 million as it only had $10 million in collateral that it had previously deposited, Citigroup said.