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Citigroup Settles Charges of Widespread Theft of Customer Funds

We can imagine how a large company might rationalize the actions that led to these charges. Customers have positive credit balances on their cards for a variety of reasons. Why not just "sweep" the cash into your own bank account, and use it as part of your leveraged reserves? The customer does not really need the money, right? Especially if they are "poor or recently deceased." You are merely 'borrowing it' with no harm done. Right? Clever. We're the Master's of the Universe, the smartest boys in the room.

We hate to use this example of Citigroup's bad behaviour when there are much better ones. Not all that long ago Citi was caught consciously manipulating the european bonds markets. They would come into a quiet market, sell a remarkably large amount of government bonds all at once to drive the prices down and run the stops of other traders, and then cover their shorts reaping a tidy little profit. Citigroup Embroiled in Bond Selling Scandal Sounds like standard operating procedure for the US futures and commodity markets to us.

But Citi is not an outlier. Anyone who thinks the brokerage and investment industry can be self-regulated, relying upon mature and enlightened self-interest, is either naive, corrupt, disingenuous, or misinformed. Wall Street has proven time and again that the lure of quick profits will cause them to subvert any and all oversight and prudent business principles. And there are many scams and frauds in the markets from a variety of smaller players as we all know. But it is the systemic frauds, the price manipulation and naked shorting, that is particularly insidious and destructive of free markets.

Strong independent regulators capable of investigating potentially criminal activity are needed and not a bunch of propeller heads or captive regulators. The Fed is utterly unequipped and incompetent to rein in these sharks as principle regulator. It would be like sending in the Schoolyard Safety Patrol to maintain order at a pedophiles convention.


AP
Citi pays $18M for questioned credit card practice
Tuesday August 26, 3:05 pm ET
By Madlen Read

NEW YORK (AP) -- Citigroup Inc. will pay nearly $18 million in refunds and settlement charges for taking $14 million from customers' credit card accounts, California's attorney general said Tuesday....

"The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps," said Brown in a statement. "When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice."

Citigroup, however, said in a statement that it voluntarily stopped the computerized "sweeping" practice in 2003, and that it also voluntarily began refunding customers before the settlement.

"We take issue with the state's characterization of our conduct and the parties' voluntary settlement," Citigroup said in a statement. "This agreement affirms our actions, and we are continuing to make full refunds to all affected customers," Citigroup said.

Citigroup shares rose 2 cents to $17.63 in afternoon trading.


Citigroup settles with California over credit card skimming
By Wallace Witkowski
MarketWatch
12:22 p.m. EDT Aug. 26, 2008

SAN FRANCISCO (MarketWatch) -- Citigroup Inc. settled charges that it stole from its customers using a computer program that skimmed positive credit card balances into the bank's general fund, according to the California Attorney General's office Tuesday. Under the settlement, Citigroup will return more than $14 million to customers with 10% interest, and pay California $3.5 million in damages and civil penalties.

Abu Dhabi Bank Sues Morgan Stanley, Bank of NY and Ratings Agencies for Fraud

Abu Dhabi bank sues in U.S. over risky investments
Mon Aug 25, 2008 6:36pm EDT

NEW YORK, Aug 25 (Reuters) - A United Arab Emirates bank sued Morgan Stanley, the Bank of New York Mellon Corp and ratings agencies Moody's and S&P on Monday, accusing them of fraud in operating a fund that collapsed in the U.S. credit crisis.

The lawsuit filed by Abu Dhabi Commercial Bank in U.S. district court in Manhattan said a complex deal known as the Cheyne Structured Investment Vehicle (SIV) was marketed by the defendants as highly rated and reliable, but they had hidden the risks.

"Instead of protecting the SIV and its investors as promised, defendants exposed the SIV to significant undisclosed risks," the lawsuit said. "Defendants knew the assets purchased and held by the SIV were risky and of poor quality. They further knew the models used to generate the high rates were flawed."

SIVs, which once held some $350 billion in assets, have played a major role in the U.S. credit crisis, after proving unable to refinance their short-term debts.

A series of SIVs are now selling off bank debt and assets such as asset-backed securities to try to pay back investors, a move that many see as further pressuring credit markets.

A deal was announced last month to restructure Cheyne, which at receivership was a $7 billion fund. Many investors who elected to stay in the restructured fund now have assets worth less than one-half of their former value, and the Abu Dhabi Commercial Bank's investment is worth zero now, the complaint said.

A spokeswoman for Morgan Stanley and a spokesman for Bank of New York Mellon declined to comment.

A spokesman for S&P parent McGraw-Hill Cos Inc declined comment, saying the company had not yet been served with the complaint.

A spokesman for Moody's Corp was not immediately available for comment.

SIVs used short-term funding, such as asset-backed commercial paper, to buy longer-term assets such as bank debt and asset-backed securities.

The bank brought the action on behalf of all investors who bought investment grade Mezzanine Capital Notes issued by Cheyne Finance PLC and its wholly owned subsidiary Cheyne Finance Capital Notes from October 2004 to October 2007.

"The ratings agencies intentionally, recklessly or negligently misled investors in Cheyne," according to the suit. "But for the ratings agencies violations of law, the capital notes never would have been issued."

Just a Pause for the Commodity Bull Market in the Collapse of Bretton Woods and the Pax Americana

The author of this thoughtful piece rests his argument for a resurgence in commodity prices on three pillars: oil is the heart of the commodity price bull market, oil is peaking in production, and overall demand for all commodities will continue to stress against supply levels even with reduced demand for the short term. Commodities trends and production increases are long cycle phenomena.

We have come to a similar conclusion but from a different path. The eye of the commodities storm has not been oil, and peak oil, but rather a collapsing international trade system based on the US dollar.

The heart of the problem is that trading increasingly worthless dollars for hard goods has been a nice protection racket with an amazingly long run under the Pax Americana. The non-G7 countries will stop accepting this arrangement, and the world will adjust.

The markets are searching for a replacement for the Bretton Woods II arrangement of dollars for oil and military protection. Increased demand and peaks in supply will merely accelerate and intensify the storm.

We think that this is already well underway, thanks in great part to the Clinton-Bush Administrations and their careless disregard for the stewardship which the US accepted with the world's reserve currency. The heightened sense of risk and volatility is because the world's markets do not yet see a viable, sustainable solution.

A new equilibrium that will underpin international trade will be discovered. But given the length and breadth of the status quo the seismic shocks of the adjustment may be quite convulsive, taking down more than a few major institutions. The epicenter for this global earthquake is somewhere between New York and Washington DC.


Commodity Bull's Not Dead, Just Resting
Vijay L Bhambwani
Daily News & Analysis - India
August 23, 2008 03:57 IST

Once the deliberate downward pressure on these assets eases, there will be a resurgence in prices

Recent days have seen an intense debate within the analyst community on the hot topic of the year — commodity prices. Many have started writing obituaries for the commodity bull and pronounced an end to the ascent in commodity prices. The impact on the corporate sector was advocated to be salutary and it was widely expected to signal an end to the woes of the equity investors....

I expect the post-US election year to be particularly tough on the global energy front as the supply-side constraints choke the optimists. Once the deliberate downward pressure on these hard assets is eased, there will be a resurgence in prices.

I am afraid the following rally may just surpass the recent one. In my humble opinion, the commodity bull is just taking a breather, forget his obituary for now. The future shock will lie not in rising commodity prices, but in not preparing for it.