Citigroup Inc. has agreed to pay the Securities and Exchange Commission (SEC) $75 million to settle charges that the bank misled investors about its exposure to subprime mortgage-related assets.
The SEC claims Citigroup repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages. Between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when it was actually more than $50 billion.
In addition to the bank's $75 million penalty, the SEC entered into settlements with two executives. Former Chief Financial Officer Gary Crittenden and former Head of Investor Relations Arthur Tildesley Jr. have agreed to pay $100,000 and $80,000, respectively, for their roles in obscuring information. Tildesley is still with Citigroup, serving as head of cross marketing, according a statement from the SEC.
‘Even as late as fall 2007, as the mortgage market was rapidly deteriorating, Citigroup boasted of superior risk management skills in reducing its subprime exposure to approximately $13 billion,’ says Robert Khuzami, director of SEC's division of enforcement. ‘In fact, billions more in [collateralized debt obligations] and other subprime exposure sat on its books, undisclosed to investors.’
Citigroup ‘made a bad situation worse,’ adds Scott Friestad, associate director of the SEC division, noting that Citigroup's improper disclosures came at a time when investors were seeking clarity Wall Street firms' exposure to subprime securities.
In settling the charges, Citigroup, Crittenden and Tildesely did not admit or deny the SEC's allegations.