Citigroup follows Goldman with fine for fraud charges

by Gill Montia

Story link: Citigroup follows Goldman with fine for fraud charges

Citigroup has become the second US bank in a fortnight to settle allegations of fraud, by paying a fine to the Securities and Exchange Commission (SEC).

The bank’s $75 million penalty relates to a charge of misleading investors over the company’s exposure to sub-prime mortgage-related assets.

The SEC states: “Between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when in fact it was more than $50 billion.”

Earlier this month, Goldman Sachs agreed to pay a $550 million fine to the Commission, also following allegations of fraud.

In 2007, the bank structured and marketed a collateralised debt obligation (CDO) that turned sour and the SEC has since alleged that Goldman allowed one of its clients, Paulson & Co, to package up the mortgages contained in ABACUS 2007-AC1 when interests were at odds.

At the time, the hedge fund was betting that US residential property values would tumble and the bank was accused of misstating and omitting key facts when selling the CDO on to investors.