Leadership

Citigroup agrees to US$75m fine over subprime statements

30.07.2010
Citigroup has agreed to pay a US$75m fine to the US financial watchdog, which alleges that the banking group misled investors over potential losses from subprime mortgage-related assets.

The US Securities and Exchange Commission (SEC) also charged one current and one former executive at Citigroup for their roles in causing the group to make the misleading statements in an SEC filing.

The SEC alleges that in response to intense investor interest on the topic of subprime mortgages, Citigroup repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages.

Between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was US$13bn or less, when in fact it was more than US$50bn, the SEC claims.

Citigroup and the two executives agreed to settle the SEC's charges. Citigroup agreed to pay a US$75m penalty, without either admitting or denying the SEC's allegation.

Meanwhile former chief financial officer Gary Crittenden agreed to pay a US$100,000 fine, and former head of investor relations Arthur Tildesley Jr, who is currently the head of cross-marketing at Citigroup, agreed to pay US$80,000.

“Even as late as fall 2007, as the mortgage market was rapidly deteriorating, Citigroup boasted of superior risk management skills in reducing its subprime exposure to approximately US$13bn. In fact, billions more in CDO and other subprime exposure sat on its books undisclosed to investors,” said Robert Khuzami, director of the SEC's Division of Enforcement.

“The rules of financial disclosure are simple — if you choose to speak, speak in full and not in half-truths.”

“Citigroup's improper disclosures came at a critical time when investors were clamoring for details about Wall Street firms' exposure to subprime securities. Instead of providing clear and accurate information to the market, Citigroup dropped the ball and made a bad situation worse,” added Scott Friestad, associate director of the SEC's Division of Enforcement.