CitiGroup Background Information

Citigroup Inc. (NYSE: C) is a major American financial services company based in New York City. According to Forbes, in March 2007, it is the world's largest company, with total assets of US $2.02 trillion. The company employs 327,000 persons worldwide and holds over 200 million customer accounts in more than 100 countries.

The history Citigroup is truly the history of its recently retired Chairman, Sanford I. (“Sandy”) Weill.  Born in Brooklyn of Polish Jewish Immigrants in 1933, Weill graduated from Cornell University in 1955, then worked as a “runner” on Wall Street.

In 1960, he helped form a small brokerage firm, Carter, Berlind, Potoma & Weill, which grew through numerous acquisitions. (Weill & Levitt, Hayden, Stone; Shearson; Hammill & Co.; Loeb Rhoades; Hornblower & Co.)  By 1981, with Weill at the helm, Shearson Loeb Rhoades was second only to Merrill Lynch when it was itself acquired by American Express. Weill then became president of American Express but lost a power struggle and resigned in 1985.  Weill reportedly vowed to return to the top of Wall Street and later succeeded in that effort.

After a failed attempt to become CEO of BankAmerica Corp. and take over Merrill Lynch, Weill persuaded Control Data Corporation to spin off its troubled consumer finance subsidiary Commercial Credit, which Weill and others purchased in 1986.  After a round of deep cost cuts and reorganization, Weill took the company public.

In 1987, Commercial Credit acquired Gulf Insurance and, in 1988, paid Japanese owners $1.5 billion for Primerica Insurance. Primerica then acquired Smith Barney and the A.L. Williams insurance company. In 1989, operating under the Smith Barney name, it acquired the retail brokerage accounts of scandal ridden Drexel Burnham Lambert.  In 1992, it paid $722 million for a 27 percent of real estate troubled Travelers Insurance.

In a personal triumph, Weill’s Smith Barney reacquired his old Shearson brokerage (then Shearson Lehman) from American Express for $1.2 billion. By the end of the year, the remainder of Travelers Corp was acquired for $4 billion in stock and the firm’s name was changed to Travelers Group Inc.  In 1996, the property/casualty operations of Aetna Life & Casualty was added at a cost of $4 billion.  In September 1997, the parent company of Salomon Brothers was acquired for $9 billion in stock.

In 1998, at a cost of $76 billion, Travelers acquired and assumed the name of Citigroup, Inc. (Citigroup is parent of CitiCorp, a two century old New York banking institution which had grown through bank mergers.)  Sandy Weill thus became not only the top securities magnate on Wall Street, but also head of the largest financial empire in the world.  He retired as Citigroup's CEO in 2003 and as Chairman in April, 2006.  He is one of the most famous and most infamous characters in the history of Wall Street.  Both admired and hated, his legacy could be “To make an omelet, one must break some eggs.”

Shepherd Smith Edwards & Kantas LTD LLP

Our law firm represents institutional and individual investors nationwide with significant losses in their portfolios, retirement plans or investment accounts.  Our attorneys and staff have more than 100 years of combined experience in the securities industry and in securities law. Several of our lawyers served for years as Vice President or Compliance Officer of brokerage firms.

Each lawyer and staff member of our firm is devoted to assisting investors to recover losses caused by unsuitability, over-concentration, fraud, misrepresentation, self-dealing, unauthorized trades or other wrongful acts, whether intentional or negligent.  We have handled over a thousand cases against hundreds of large and small investment firms, including claims against both Citigroup and Smith Barney.

Call us at (800)259-9010 or contact us through our Website to arrange a free confidential consultation with an attorney to discuss your experiences with an investment advisor or financial firm which resulted in losses.

Additional Information:
Citigroup to Pay BellSouth Retiree Victims $12 Mil.

The NASD fined Citigroup Global Markets, Inc., $3 million for using misleading materials in retirement seminars and meetings to entice BellSouth employees in North and South Carolina.  Citigroup must also pay over $12 million to 200+ of the victims.

The NASD order found that Citigroup failed to adequately supervise a team of brokers who used misleading sales materials during dozens of meetings for hundreds of employees of BellSouth Corporation.  Most of the employees were unsophisticated investors with little experience in investing who were offored packages to retire early. They were enticed to cash out their pensions and invest the proceeds at Citigroup.

The victims include BellSouth workers, many who worked as operators, installers and line persons for decades to prepare for retirement.  BellSouth is now a unit of AT&T, Inc.  "Many BellSouth employees gave up secure pensions, believing they could afford to retire early, but ended up losing substantial amounts from their retirement nest eggs," an NASD official stated.

Traveler’s Merger with Citigroup Called Illegal

The takeover of Citicorp by Travelers was deemed illegal because the Glass-Steagall Act, legislation, stemming from the United States' Great Depression era, did not allow banks to merge with insurance underwriters.

Yet, lawyers for the new financial giant, found the Federal Reserve could grant it a two year trial period before the insurance underwriting division must be divested. Weill and his counterpart at Citicorp went to work to change the law before that expiration date.  Through efforts of heavyweight lobbyists, even former President Gerald Ford, the law was finally changed in 1999 with the passing of the Gramm-Leach-Bliley Act.

Oddly enough, the company soon spun off its Travelers Property and Casualty insurance underwriting business deeming it as a drag on Citigroup stock price.  The brokerage and banking unites attempted to co-exist, but too many egos were at work.  Infighting between corporate bankers and investment bankers culminated with a drunken skirmish between the heads at a company retreat led to the ousting of the banking head.

Citigroup’s Fraudulent Research Scandal

As Federal Regulators including the SEC looked the other way, New York Attorney General Elliott Spitzer embarked upon an investigation of Wall Street, with Citicorp and other major firms at the center of the scandal.  These firms were accused of having struck secret deals with companies in which the firms’ stock research division would rate a company a "Buy" to entice that company to hire the firm’s investment banking division. Implicated by the scandal were officials at CitiGroup, primarily Citigroup’s Jack Grubman.  Sandy Wiell was himself investigated but not formerly charged.  

Citigroup’s Enron, WorldCom & Parlamat Scandals

Citigroup was accused of assisting Enron, WorldCom, Parlamat and other companies hide  losses through loans to those companies and/or through third party financial arrangements which allegedly overstated assets and/or revenues or reduced liabilities visible on the balance sheets of those companies, thus misleading shareholders.  Claims, including for “fraud on the market”, were filed against Citigroup and others.  In May 2004 the company agreed to pay $2.65 billion, or $1.64 billion after tax, to settle a class action lawsuit brought on behalf of purchasers of WorldCom securities. Litigation is at various states against Citigroup regarding Enron and Parlamat.

Citigroup’s Japanese Private Banking Scandal

Citigroup removed three senior executives in the wake of a banking scandal in Japan. The scandal involved the Private Bank, the division that deals with very wealthy customers. It was alleged that the Private Bank failed to follow certain anti-money laundering procedures, that it used deceptive sales tactics, and that it assisted a customer in doing transactions which disrupted the financial markets or were fraudulent. Some of the accusations included sales of complex securities to the unwary elderly that would likely not mature in their lifetime, violating the SEC regulations as well as business ethics. This caused the Japanese regulators to shut down the Private Bank.

Citigroup’s Proprietary Government Bond Scandal

In 2004, Citigroup was criticized for disrupting the European bond market by rapidly selling ÂÂÂÂÂÂÂÂÂÂ11 billion worth of bonds on the MTS Group trading platform, driving down the price, and then buying it back at cheaper prices.  In a reportedly related action the U.S. Federal Reserve refused for months to rule on Citigroup's application to acquire a Texas Bank as a result of these claims. 

Citigroup’s Brazilian Pension Scandal

As is a major partner of Brasil Telecom, Citigroup was implicated in charges related to a highly controversial deal executed with pension funds of Brazilian state-owned companies.  According to allegations, these funds would have a put option against them for a value deemed far above arm's-length market levels. After public outcry in Brazil, the deal was partly annulled by a federal court and the matter was investigated by a panel of Brazilian congress people.

Citigroup’s Improper Late Fee Scandal

In 2001, Citibank settled a lawsuit for improperly assessing late fees. The class action lawsuit was for 45 million dollars. Following this Citibank lobbied in Congress, to pass legislation that would limit class action lawsuits to 5 million dollars unless they were initiated on a federal level (Class Action Fairness Act of 2005). Many consumer advocate websites report that Citibank is still improperly assessing late fees.

Citigroup’s Australian Insider Trading Scandal

In March 2006, the Australian corporate regulator ASIC filed penalty proceedings in the Federal Court against Citigroup's global markets subsidiary in Australia. ASIC has alleged that Citigroup, acting as an advisor to Toll Holdings in its bid to takeover Patrick Corporation, violated Australian law by using its insider knowledge of the takeover bid for profitable gain when Patrick's share price jumped 13% during the period after the takeover bid went public.

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