Citigroup to pay $285 mn to settle SEC charges
Global financial major Citigroup has agreed to pay $285 million to settle charges levelled by the Securities and Exchange Commission that it misled investors in a billion dollar derivatives deal.india Updated: Oct 20, 2011 13:37 IST
Global financial major Citigroup has agreed to pay $285 million to settle charges levelled by the Securities and Exchange Commission that it misled investors in a billion dollar derivatives deal.
The settlement agreement comes even as the US regulatory body brought separate charges against an Indian-origin portfolio manager who was primarily responsible for the transaction.
The SEC has charged Citigroup's principal US broker-dealer subsidiary with misleading investors about the $1 billion dollar derivatives deal tied to the US housing market.
Citigroup bet against investors as the housing market showed signs of distress, leaving investors with losses even as it made $160 million in fees and trading profits.
The agency brought separate charges against Credit Suisse's asset management unit, which served as the collateral manager for the derivatives transaction, as well as against Samir Bhatt, the Credit Suisse portfolio manager primarily responsible for the transaction.
The SEC instituted related administrative proceedings against Bhatt, who has not admitted or denied the SEC's findings.
He has consented to the issuance of an order directing him to cease from committing any future violations.
He has also been suspended from associating with any investment adviser for a period of six months.
The SEC separately charged Citigroup employee Brian Stoker, who had structured the deal.
"The securities laws demand that investors receive more care and candour than Citigroup provided to these investors," the Director of the SEC's Division of Enforcement, Robert Khuzami, said.
"Investors were not informed that Citgroup had decided to bet against them and had helped choose the assets that would determine who won or lost," Khuzami said.
According to the SEC complaints filed in the US District Court for the Southern District of New York, when the securities promoted by Citigroup defaulted, about 15 investors lost virtually their entire investment, while Citigroup received fees of approximately $34 million for structuring and marketing the transaction and additionally realised net profits of at least $126 million from its short position.
The settlement, subject to court approval, requires Citigroup to pay $160 million dollars in disgorgement and a 95 million dollar penalty.
The total $285 million penalty will be returned to investors through a 'Fair Fund' distribution.