07 August 2008

CITI Agrees to Pay Fines and Buy Back 7 Billion in Illiquid Misrepresented Securities

The AP headline below makes Citi sound like Saint Nicholas or Robin Hood doesn't it? Citi was caught with their hands in the cookie jar making consciously false claims for securites which they wished to unload on the public, and then attempting to obstruct justice by destroying evidence. They made their plea bargain to avoid the discovery process and criminal prosecution.

Look for all the other big banks involved to plead out as well. This was once again driven by the States attorney-generals. We wonder if Bernanke will be exchanging these auction rate securites for US Treasuries at par for Citi at the special customers window?

The wristslaps will continue until the victims wake up and do something or are bankrupt, whichever comes first.

Citigroup returning billions to investors
Thursday August 7, 12:05 pm ET

Citigroup returning billions to investors, paying fine in deals over auction securities

WASHINGTON (AP) -- Citigroup Inc. will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators announced Thursday.

Citigroup will buy back the securities from tens of thousands of investors nationwide under separate accords with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and other state regulators. The buybacks will have to be completed by November.

The nation's largest financial institution also will pay a $50 million civil penalty to New York state and a separate $50 million civil penalty to the North American Securities Administrators Association, which represents securities regulators in the 50 states and the District of Columbia.

The SEC also will consider levying a fine on Citigroup, the agency's enforcement director Linda Thomsen, said at a news conference. (Smaller than a wristslap and perhaps not bigger than a parking ticket. Financial crime pays at the Federal level. - Jesse)

New York-based Citigroup neither admitted nor denied wrongdoing under the settlements.

Cuomo had threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents. (Citi once again avoids discovery - Jesse)

The $330 billion auction-rate securities market involves investors buying and selling securities backed by municipal bonds, student loans and other debt. The market collapsed in February amid turmoil in the credit markets.

"More than 50 percent of our retail clients' holdings in (auction-rate securities) have been redeemed or auctioned at par since the crisis began," Citigroup said in a statement. "We remain committed to continuing our work on initiatives that will secure the best and fastest route to providing liquidity to our clients."

The federal and state regulators have been investigating marketing of the securities by a number of big banks.

Cuomo's office sued the Swiss bank UBS AG last month over billions of dollars in sales in auction-rate securities, and states including Massachusetts and Texas have filed similar complaints. Massachusetts last week accused Merrill Lynch of fraud in promoting the sale of auction-rate securities.

Interest rates on the securities are set at periodic auctions, on the basis of bids submitted.