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Citigroup Inc. (C): Facebook Inc. (FB) IPO Disaster Was NASDAQ’s Fault

Citigroup Inc. (NYSE:C), still stinging from its losses on underwriting the chaotic IPO of Facebook Inc. (NASDAQ:FB) in May, has fired off a 17-page letter to the Securities and Exchange Commission (SEC) blaming NASDAQ for the problems with the IPO, and recommending that NASDAQ restore all $20 million in losses rather than the “fraction” it has proposed.

Facebook Inc. (FB)

Citigroup Inc. (NYSE:C), UBS AG (NYSE:UBS) and Knight Capital were the primary underwriters for for the Facebook Inc. (NASDAQ:FB) IPO, and the three companies have claimed total losses in excess of $410 million. NASDAQ initially proposed to pay $40 million in compensation to the three firms for their mistakes, but have since upped that amount to $62 million – but Citigroup wrote the letter to the SEC saying it was not nearly enough. Citigroup lost about $20 million on the IPO, more than half of what Knight Capital lost and just 6 percent of the UBS AG (NYSE:UBS) loss.

“Nasdaq was grossly negligent in its handling of the Facebook I.P.O., and as such, Citi should be entitled to recover all of its losses attributable to Nasdaq’s gross negligence, not just a very small fraction as is currently the case,” Citigroup Inc. (NYSE:C) wrote in its letter to the SEC.

The letter from Citigroup Inc. (NYSE:C) went on to say that the losses from the IPO weren’t due to a system glitch as was cited by NASDAQ, but were “grossly negligent, self-serving business decisions.”

As might be expected, NASDAQ is claiming no such responsibility and denies the charges in the letter from Citigroup Inc. (NYSE:C). NASDAQ requires customers to sign a contract signifying agreement to the rules of the exchange before a stock begins trading.

How much Citigroup Inc. (NYSE:C) winds up getting out of this process may be small in nature, but it may send some kind of message to investors, especially hedge funds like David Tepper’s Appaloosa Management LP.

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