Citigroup To Pay $285 Million To Settle Fraud Case

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NEW YORK: [url="http://timesofindia.indiatimes.com/topic/Citigroup"]Citigroup[/url] Inc will pay $285 million to settle charges that it defrauded investors who bought toxic housing-related debt that the bank bet would fail, the US [url="http://timesofindia.indiatimes.com/topic/Securities-and-Exchange-Commission"]Securities and Exchange Commission[/url] said on Wednesday.

The SEC said the bank's [url="http://en.wikipedia.org/wiki/Citigroup"]Citigroup[/url] Global Markets unit misled investors about a $1 billion[url="http://en.wikipedia.org/wiki/Collateralized_debt_obligation"]collateralized debt obligation[/url] by failing to reveal it had "significant influence" over the selection of $500 million of underlying assets, and that it took a short position against those assets.

It said one experienced CDO trader called the portfolio "possibly the best short EVER!" while an experienced collateral manager said "the portfolio is horrible."

In a statement, [url="http://en.wikipedia.org/wiki/Citigroup"]Citigroup[/url] said the SEC did not charge the unit with any "intentional or reckless misconduct" and that the settlement "resolves all outstanding SEC inquiries into those activities."

The settlement is the third by the SEC against a major bank it accused of marketing a CDO without disclosing it was betting against it or allowing others to do so.

The SEC has also settled cases against Goldman Sachs and [url="http://en.wikipedia.org/wiki/JPMorgan_Chase"]JPMorgan[/url].

The agency and criminal prosecutors are under pressure from lawmakers and the public to bring cases that hold Wall Street figures accountable for their role in the 2007-2009 financial crisis that triggered a deep recession.

According to the SEC's case against Citigroup, the CDO, Class V Funding III, defaulted in November 2007, fewer than nine months after it closed, leaving investors with losses even asCitigroup made $160 million of fees and profits.

On the other side of the deal was [url="http://en.wikipedia.org/wiki/Ambac_Financial_Group"]Ambac[/url] Credit Products, which agreed to sell insurance on the $500 million in assets Citigroup had selected.

"The securities laws demand that investors receive more care and candor than Citigroupprovided," SEC enforcement chief [url="http://en.wikipedia.org/wiki/Robert_Khuzami"]Robert Khuzami[/url] said in a statement.

The sanctions will go to the investors who lost money on the deal, the SEC said.

Citigroup settled with the SEC without admitting wrongdoing. The SEC also filed charges against Brian Stoker, who it said was the Citigroup employee primarily responsible for structuring the transaction.

A lawyer for Stoker said there was "no basis" for the SEC's allegations against him. "He was not responsible for any alleged wrongdoing -- he did not control or trade the position, did not prepare the disclosures and did not select the assets," said Fraser Hunter, Jr., with Wilmer Hale.

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