Citigroup Just Keeps on Breaking the Law

Time and again, Citigroup Incorporated has been accused of securities fraud. On each occasion, Citigroup has reached a monetary settlement with the U.S. Securities and Exchange Commission (SEC), with the proviso that it would be allowed to continue to carry on its business as usual. According to the SEC, the granting of the waivers that allowed Citigroup to continue to operate was based upon the assumption that the firm would not continue to break the law. Unfortunately, Citigroup not only continued to break the law but it continued to break the very same laws over and over again, each time receiving more waivers from the SEC without ever having any prior waivers revoked, as reported by Bloomberg.

Over the last eight years, since 2003 Citigroup has been accused of securities fraud by the SEC on five separate occasions. Every time a settlement would be pounded out where Citi would pay an agreed upon monetary fine and consent to an SEC order barring it from committing the same violation again while allowing it to continue to conduct its business as usual. Unfortunately, Citigroup keeps breaking the same laws time and time again and the SEC keeps entering into subsequent settlements with the same language, without ever enforcing the prior orders. As the article put it, those "obey the law" directives haven't meant much.

Recently, U.S. District Judge Jed Rakoff in Manhattan was assigned to approve another Citigroup settlement with the SEC for $285 million. This settlement was the result of an accusation by the SEC that Citi had marketed and sold a $1 billion collateralized debt obligation (CDO) to investors in 2007, without telling them that the firm chose the underlying assets for the CDO and was betting on its failure. As a result, Citi pocketed some $160 million in profits. The monetary fine was $95 million, which was included in the settlement of $285 million. Not much of a deterrent for the firm that had just posted quarterly earnings of $3.8 billion. Judge Rakoff is known for questioning the fairness of SEC settlements. In 2009, he was assigned to approve a $33 million settlement between the SEC and Bank of America related certain disclosure violations in the $29.1 billion takeover of Merrill Lynch & Company. Rakoff rejected the offer as being unfair and later approved a settlement for five times the original settlement, or $150 million, for the same violations. The ultimate question for Rakoff was whether the settlement was "fair, reasonable, adequate and in the public interest." His questioning an SEC settlement and requiring Bank of America and the SEC to justify its fairness was virtually unheard of in the legal community where such agreements were automatically rubber stamped.

In the recent Citigroup case, the SEC had a couple of already pending cease-and-desist orders against Citigroup, from a 2005 and a 2006 settlement, barring future violations of the same securities laws that the company is again accused of violating again, according to the article. Additionally, the recent case might have easily been seen to be in violation of a court injunction agreed to by Citigroup in a $400 million settlement for allegedly false analyst reports in 2003. In the case before the court, Judge Rakoff made significant inquiries to both the SEC and Citigroup asking pointed questions about contempt proceedings against repeat offenders such as Citigroup. For example, he asked: "What does the SEC do to maintain compliance?" This question is related to the SEC wanting another injunction against Citigroup for future violations. He also wanted to know: "How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of prior consent judgments?"

Naturally, Citigroup says: "Citi has entered into various settlements with the SEC over the years and there is no basis for any assertion that Citi has violated the terms of any of those settlements."

Contact Us
Free Consultation: (800) 259-9010