They alleged there were 'red flags' from public statements like Paul Krugman in the NY Times (27 May 2005) saying there were 'feverish stages of a speculative bubble' and Ameriquest Mortgage (May 2006) closing 229 offices and dismissing 3800 employees.

Derivative Litigation standard of 'utter failure' establishing a lack of good faith,[1] which was approved further in Stone v.

[2] As he said, the business judgment rule, prevents judicial second guessing of the decision if the directors employed a rational process and considered all material information reasonably available – a standard measured by concepts of gross negligence... ...indeed, a showing of bad faith is a necessary condition to director oversight liability... [...] In contrast, plaintiffs' Caremark claims are based on defendants' alleged failure to properly monitor Citigroup's business risk, specifically its exposure to the subprime mortgage market.... [The claim is...] that Citigroup suffered large losses and that there were certain warning signs that could or should have put defendants on notice of the business risks related to Citigroup's investments in subprime assets.

Plaintiffs then conclude that because defendants failed to prevent the Company's losses associated with certain business risks, they must have consciously ignored these warning signs or knowingly failed to monitor the Company's risk in accordance with their fiduciary duties.

[...] ...plaintiffs would ultimately have to prove bad faith conduct by the director defendants... [...] That the director defendants knew of signs of a deterioration in the subprime mortgage market, or even signs suggesting that conditions could decline further, is not sufficient to show that the directors were or should have been aware of any wrongdoing at the Company or were consciously disregarding a duty somehow to prevent Citigroup from suffering losses... [...]