Citigroup to settle with authorities on securities fraud

08 August 2008

Citigroup Inc., the largest US bank by assets, agreed to buy back or help clients unload $19.5 billion in auction-rate securities and pay a $100 million fine to settle US regulatory claims it improperly saddled customers with untradeable bonds. (See: Citigroup becomes the latest Wall Street entity to be charged with securities fraud)

Citigroup will buy back about $7.5 billion in securities from 40,000 individual customers, charities and small businesses under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission (SEC) and a group of states, led by Texas, the SEC said in a statement today.

It must also start ''restoring liquidity'' to more than 2,600 institutions holding about $12 billion of the instruments, the SEC said. Additionally, the bank will pay a $50 million penalty to New York state and a separate $50 million civil penalty to the North American Securities Administrators Association.

"Today's settlement sends a resounding message to the entire auction-rate securities industry," said Cuomo. "This type of deceptive behavior will not be tolerated and we will actively seek justice on behalf of investors.

"Our goal is simple: to get investors back their money, and that's exactly what this deal does," he added.

Citigroup is the first Wall Street firm to settle federal claims amid a probe into how banks sold auction-rate securities before the $330 billion market collapsed in February. The accord may set a precedent for negotiations with firms including UBS AG and Merrill Lynch, which have been named in civil complaints by Cuomo and authorities in Massachusetts. (See: New York attorney general charges UBS with securities fraud and Merrill Lynch charged with auction rate securities fraud in Massachusetts)