We give credit to: David S. Hilzenrath, with Credit to Bloomburg and Washington Post, as well as public sources for much of the material in this article.
CITI-GROUP CAUSED INVESTOR LOSSES OF $700,000,000 AND SOMEHOW MANAGED A FINE OF ONLY $285,000,000 FOR MISCONDUCT AND DECEPTIVE PRACTICES. Citigroup has repeatedly violated past promises not to violate fraud laws.
Investors who were allegedly misled by Citigroup about a housing-related investment at the start of the mortgage meltdown lost more than $700 million in the deal, the Securities and Exchange Commission estimated in a court document filed Monday. The SEC ruled that Citigroup had to pay $285,000,000 in fines for what smells like fraudulent activity. Citigroup apparently condoned what seems to be fraud, because the same day that the fine was announced, Citi gave it's President a $25,000,000 bonus. This leads one to ask what level of ethical behavior does Citigroup believe in? Apparently, it is ok, in their book, to commit acts that look, smell and act like fraud, to cost investors $700,000,000, and the signal of giving a bonus, after the courts cry something like"Wrong, you cheated!", suggests to some that they believe in "Do the crime, pay the fine, and then do it better next time." And repetition is what Citigroup seems to do, because the SEC made it promise to never break "Anti Fraud" laws again. But Citigroup's people have repeatedly broken the laws.
Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same anti fraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000. Hm mm. There you have it.
That loss figure of $700,000,000.00 that Citigroup customers lost, is more than double the $285 million the SEC has said it would accept from Citigroup to settle the agency’s most recent fraud related case against the firm. The SEC explained that all the investor losses were ”not necessarily” the result of misconduct. We then are forced to wonder what caused the SEC to pull back on this? The entire legal action was based upon violation of fraud statutes. We think that the SEC had a lack of funds, or lack of legal "guns" for litigation against Citigroup's substantial and well financed legal team. Friendships and influence of Citi and SEC staffers? The entire package stinks of something rotten.
The SEC disclosed its estimate in response to questions from U.S. District Court Judge Jed S. Rakoff, who must decide whether to approve the settlement. If we measure the mood of the country correctly, millions of Americans would like to see a tougher interpretation of the law regarding Citigroup. We hope Judge Rakoff can be independent of big money influence. If Global Perspectives understands this right, the settlement makes Citi pay back investors who lost money. But $700,000,000 in losses, seems like more than the $285,000,000 fine, but of course, we use "Main Street America math", not "Wall Street math". So, no wonder Citgroup paid their CEO that bonus, because there was at least another $415,000,000 in losses to clients, that they aren't going to have to pay back to the investors, if this settlement is approved by Judge Rakoff.
The SEC had charged that Citigroup Global Markets, a subsidiary of the bank, misled investors about a complex investment in 2007 that was tied to the collapsing housing market.
Citigroup made profits of at least $160 million on the transaction, playing both sides of the table and "selling out" their clients, according to the SEC and others.
The settlement with Citigroup calls for the firm to give up alleged ill-gotten gains of $160 million, plus pay interest of $30 million and a $95 million penalty, for a total payment of $285 million.
Under the proposed settlement, Citigroup neither admits nor denies wrongdoing.
The only Citigroup employee charged in the case was described by the bank as a mid-level employee at the subsidiary, and he is fighting the charges. We won't be surprised if he eventually gets a nice bonus as well.
The case is one of several in which regulators allege that Wall Street firms left their customers holding the bag for investments tied to sub-prime mortgages. Rakoff has criticized past SEC settlements as inadequate, but he also has approved settlements that he faulted, including one with Bank of America.
If the SEC is going to truly regulate and protect Americans against fraud and abuse, we would hope that the Judge will show strength here.
An advocacy group called Better Markets called on Rakoff to reject the Citigroup settlement.
In its filing Monday, the SEC defended the settlement as “fair, adequate and reasonable.”
The SEC had previously told the court that the “extent of injury to innocent parties” was one of nine factors it considered in determining what penalty would be appropriate.
Rakoff, who has scheduled a hearing on the Citigroup settlement, has questioned several aspects of the case, including why the company was charged with negligent rather than reckless or intentional fraud. Note the semantics. Cit's attorney's managed to somehow get the SEC to leave the word "fraud" out of the judgment. Let's see the Oxford definition of fraud:
"CRIMINAL DECEPTION" "A DISHONEST TRICK". Now to put together a pool of investments doomed to fail, and not tell the investors that you had a conflict of interest in selecting the investments, to take hundreds of millions of dollars from investors, in an investment that you were already doing arbitrage to profit on the pool when it failed. All of that seems like a "dishonest trick" to us. Criminal deception? Well investors lost $700,000,000 in this deception,it sounds criminal enough to me. People are sent to jail for robbery of $10,000, so it would seem that when Citi robbed investors of $700,000,000 that it is just a criminal (even more so) than a typical bank robber or theif.
The SEC said the evidence “did not clearly establish an intent to defraud.” Hmmm. This might be interpreted as meaning. "We don't have the energy, money, or will to fight Citi's attorneys on this."
The SEC argued that the judge is not entitled “to evaluate claims that the government did not make and to inquire as to why they were not made.” Citing legal precedent, the SEC said courts “should pay deference” to the agency’s judgment.
The judge also questioned the SEC’s practice of letting defendants settle without admitting or denying wrongdoing. Citigroup said it made a business decision to settle, partly to avoid the risk of losing the case and having the outcome used against it in other lawsuits.
In a court filing, Citigroup also said that, without a settlement, the SEC would have to litigate “substantial factual and legal issues.” For example, marketing materials for the deal told investors that Citigroup “may be expected to have interests that are adverse to the interests of Note-holders.”
In light of this, it is no wonder that we see people demonstrating in front of Citi Bank offices around the nation, suggesting that consumers withdraw funds from Citi and other banks that took "taxpayer bail out" money. There is a perception, brought about by actions such as this litigation and fine on Citi, that the big "bailed out" banks do not have principled ethical systems that are in the interests of the American people. If there is a sense that confidence in the "Big Bank" system continues to erode, these banks, or some of them, could face bigger problems. It is thought, by some bank experts, that some could fail. Certainly, the failure of a bank, that has done what Citi has done, would not be a sad day for millions of Americans who have had to pay Citi's 29% interest rates on credit cards, or dealt with Citi's rude and often unprincipled representatives. Perhaps the people have a point. Diversify funds back to the locally owned community banks and credit unions. At least they seem to be interested in people and towns, and seem to avoid the "Wall Street" gamblers and high speed investment pools.