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Citi Pays $285 Million to Settle Charges It Deceived Investors

Wednesday, October 19, 2011

Citigroup has settled charges by the Securities and Exchange Commission that one of its subsidiaries deceived investors in a mortgage-related product right before the collapse of the housing market.

Citigroup will pay almost 300 million dollars to settle charges from Securities and Exchange Commission that one of its subsidiaries deceived investors in a mortgage-related product in 2007.
SEC Director of Enforcement Robert Khuzami [coo-ZAH-mee] says investors were told they were buying a basket of safe mortgage bonds selected by an outside advisor. 
In fact, this collateralized debt obligation, or CDO, was assembled by Citigroup with the intention that it would go sour.
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[in effect, Citi bet that that CDO assets would fail, but never told investors that it had taken the short position.]
Citigroup is not admitting or denying guilt. One Citigroup employee has been charged for his role.
[Credit Suisse, which had a role in the transaction, also settled charges.
With this suit, the SEC has now filed 22 separate cases against 81 individuals and companies relating to the financial crisis. Defendants have paid almost two billion dollars in penalties and restitution.]

SEC Director of Enforcement Robert Khuzami said, in 2007, investors were told they were buying a basket of safe mortgage bonds selected by an outside advisor, Credit Suisse.

In fact, this collateralized debt obligation, or CDO, was assembled by Citigroup Global Markets with the intention that it would go sour. Investors eventually lost everything, while Citigroup used credit default swaps, a form of insurance, to make at least $126 million.

"In effect, Citi bet that that CDO assets would fail, but never told investors that it had taken the short position," Khuzami said.

Citigroup did not admit or deny the charges made by the SEC. The company said in a statement that is was "pleased to put this matter behind us." One Citigroup employee, Brian Stoker has been charged for his role.

The investment advisor, Credit Suisse, and one of its employees were also charged. They have also reached a settlement with the SEC.

Citigroup is paying $285 million to settle the charges, including $190 million in restitution and interest.

With this suit, the SEC has now filed 22 separate cases against 81 individuals and companies relating to the financial crisis. Defendants have paid almost $2 billion in penalties and restitution.

 

 

 

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