Citi to pay $75m to settle SEC charges

Citi to pay $75m to settle SEC charges
By Suzanne Kapner, Justin Baer and Brooke Masters in New York
Copyright The Financial Times Limited 2010
Published: July 29 2010 22:05 | Last updated: July 29 2010 22:05
http://www.ft.com/cms/s/0/2e668780-9b50-11df-baaf-00144feab49a.html


Citigroup has agreed to pay $75m to settle Securities and Exchange Commission charges that it failed to disclose to investors more than $40bn in exposure to subprime mortgages.

Thursday’s deal comes two weeks after the SEC levied a record $550m fine against Goldman Sachs to settle allegations the bank defrauded investors in a collateralised debt obligation that was based on subprime mortgages.

Citi did not admit wrongdoing but the settlement includes information that could prove useful in investor lawsuits filed against it.

“The SEC complaint confirms our core allegations and we can use the documents that they cite,” said Steven Singer, lead attorney in a suit filed by investors in Citi bonds.

The SEC said Citi stated four times in July and October 2007 that it had reduced its subprime exposure from $24bn to $13bn at the end of 2006. Yet the bank failed to inform investors until November 2007 that it held more than $40bn in “super senior” tranches of CDOs backed by subprime mortgages and related instruments called “liquidity puts”, the SEC claimed.

Citi executives did not initially classify those assets as subprime because they believed there was little chance of default, the SEC said. By the time Citi disclosed the full extent of its subprime holdings in November, the value of the securities had plunged, helping to cost former chief executive Chuck Prince his job. Mr Prince was not charged with any wrongdoing in this case.

The SEC alleged that Gary Crittenden, former Citi chief financial officer, and Arthur Tildesley, former investor relations director, helped to draft and approve misleading statements.

Mr Crittenden agreed to pay $100,000 and Mr Tildesley, now head of cross marketing for the bank, agreed to pay $80,000. A spokesman for Mr Crittenden said he was pleased to resolve the matter. Mr Tildesley’s lawyer declined to comment.

Like both executives, Citi has neither admitted nor denied wrongdoing, but pointed out that the SEC did not charge anyone with reckless misconduct.