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Citigroup Settles for $285 Million; No Wall Street Exec Jailed Yet
WASHINGTON — Global banking giant Citigroup has agreed to pay $285 million to settle charges that it misled investors about a complex financial instrument tied to the now-crippled housing market, the Securities and Exchange Commission said Wednesday.
This sort of "heads I win, tails you lose" behavior by Wall Street is what prompted last year's extensive revamp of financial regulation, known as the Dodd-Frank Act, which several GOP presidential candidates vow to repeal. It's also what has driven many Americans to support the Occupy Wall Street protest movement growing in cities across the nation. The announcement was unlikely to satisfy critics of Wall Street and Washington's bailout of its banks who've waited years for any major Wall Street executive to be jailed for practices that led to the global financial meltdown in 2008, which still roils the U.S. economy.
The SEC alleged that Citigroup's main broker-dealer subsidiary duped investors who had bought portions of a $1 billion offshore deal known as a collateralized debt obligation. CDOs are bundles of bonds tied to the performance of mortgages and other loans. The deal in question was precisely the kind of engineered financial product that blew up in 2008 and nearly brought down the global financial system.
In the complaint, the SEC alleged that Citigroup Global Markets selected about $500 million worth of assets in the deal, but in marketing materials suggested to investors that Swiss bank Credit Suisse had conducted the selection.
That gave the appearance that it was an arms-length transaction. In reality, said the SEC, Citigroup's subsidiary selected the assets and then bet against the investors in the very product it was selling. Betting that a bond will default is known as shorting, or going short.
With the settlement, Citigroup joins other major banks that collectively have shelled out more than $1 billion to settle SEC enforcement cases. Investment titan Goldman Sachs last year agreed to a $550 million civil settlement. Earlier this year JPMorgan Chase also settled on similar charges, agreeing to pay more than $153 million.
This sort of "heads I win, tails you lose" behavior by Wall Street is what prompted last year's extensive revamp of financial regulation, known as the Dodd-Frank Act, which several GOP presidential candidates vow to repeal. It's also what has driven many Americans to support the Occupy Wall Street protest movement growing in cities across the nation.
"It's not called Occupy Wall Street because it's a random geographical location," said Bartlett Naylor, who heads financial policy for advocacy group Public Citizen, which wants criminal charges filed against Wall Street executives. "The details (of this case) are the face of the problem that brings Occupy Wall Street protestors to the streets. We have theft from actual people. In the end these are pension fund beneficiaries ... it's clear we know the names of the perpetrators, and yet these people are apparently not heading to jail."
In a statement on its website, Citigroup neither admitted nor denied guilt.
"We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly," the statement said.
Citigroup had previously reached a $75 million settlement with the SEC in July 2010 for failing to adequately disclose how much risk it carried on junk mortgages. A federal judge first rejected that settlement as too light, before agreeing later to accept it.
Prompted by allegations from Iowa Republican Sen. Charles Grassley, the SEC's inspector general began investigating whether enforcement chief Robert Khuzami, a former general counsel for Deutsche Bank, gave preferential treatment to executives in reaching that settlement. Results of that inquiry haven't been disclosed, but it apparently won't sideline Khuzami, who made Wednesday's announcement.
SEC documents released Wednesday spell out how the Citigroup transaction, known as Class V Funding III, closed on Feb. 28, 2007, and that by November about 83 percent of the assets in the complex deal had defaulted. Citigroup still walked away with staggering profits.
As part of Wednesday's settlement, Citigroup agreed to pay a $95 million penalty. It also committed to return $160 million in fees and profits and another $30 million in interest payments. Credit Suisse agreed to pay $2.5 million in penalties for its alleged role in misleading investors about who selected the assets for the deal.
Former Citigroup executive Brian Stoker, also charged with civil fraud, refused a settlement and chose to fight the SEC in civil court.
Big bucks and minimal transparency characterized the world of structured finance, where Wall Street sliced and diced $2 trillion in loans into complex securities that eventually went bust. McClatchy Newspapers reported exclusively in 2009 on how Moody's Investors Service was complicit by giving AAA ratings to junk bonds, and how Goldman Sachs secretly bet against its mortgage products while safely exiting a cresting housing market before its collapse.
During a Wednesday news conference, Khuzami read from an email sent by a veteran CDO trader that referred to the Citigroup's deal as "the best short ever." In SEC documents, this same trader refers to the deal as "dog shit."
Somehow this deal still got a gold-plated AAA rating from both Moody's and Standard & Poor's, yet neither was charged in the Citigroup case or any other one. Khuzami declined to answer questions from McClatchy about the role of ratings agencies in the deal and whether they were complicit in misleading investors.
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38 Comments so far
Show AllNO WALL STREET EXEC. JAILED YET.What American banks like, Bank of America, Wells Fargo, Citibank, Chase and others have is a cabal of Bernie Madoffs, except Bernie was a small financial player next to this crooked cabal of Wall Street banksters that have ripped of trillions of $$$$$$$$ from the American people. They need to be exposed and given their day in a court of law. But alas, they are a bunch of bank robbers hiding in the dark: hiding behind their $$$$$; and hiding in the shadows, hoping to not ever be exposed.
"TOO BIG TO FAIL" = "TOO BIG TO JAIL"
Why the hell wait to vote Oblahblah out of office, Impeachment is so much quicker!
For Treason!!! Morgan/Chase committing "arson scam" now see Keiser report (10/18) http://rt.com/programs/keiser-report/episode-198-max-keiser/
And this $ only goes to investors/ not the defrauded liar loan victims who are being foreclosed w/ fraudulent robo-signed docs. And what about the rating agencies and AIG??? "if your not outraged, you're not paying attention"
SJ4all:.........Thanks for the Max Keizer link. Here's a good article on the BOA derivatives bailout. http://dailybail.com/home/holy-bailout-federal-reserve-now-backstopping-75-trillion-of.html. .......The Federal Reserve Bank needs to be taken down and OCCUPY WALL STREET needs to start focusing attention on them!
Thanks, Destroying one's country is treason. And allowing it demands accountability...im peaches!
Blood in the streets. Coming soon to a city near you!
bingo....but you know, "Let them eat Cake"....my ass
The cake will be eaten in their kitchens this time.
Hell, I've never had the option of a payoff without admitting guilt! Why do these yea-hoos always get that choice? (True I've never had the money to be able to, but... never had the choice either)
$285 million! What travesty of justice. What did they make by shorting that CDO?
We stick it to them where it will hurt: Cut up those credit cards.
That's what I'd like to know also. Just what sort of percentage does that 285 million amount to? I am guessing less than what most of us pay in banking fees.
Give us a figure on those "staggering profits".
This could also be said of Big Pharma. They pit a known drug on the market that kills thousands. They make billion, but only have to pay fines in the millions.
The money all corporations are fined should be given back to us taxpayers.
The SEC and banks are the same thing.
I want to see all CEOs that broke the law in jail.
Especially mining and oil that have murdered people!
This behavior has been going on at least since the Ford Pinto fiasco. Lee Iaccoca had this down way back then.
The 99% have drafted a Declaration that ought to be published as its own item here at CD so I don't have to spam every article with the URL as I'm now going to do, https://sites.google.com/site/the99percentdeclaration/
Follow the money directly into the re-election campaign of Barack Obama.
What more evidence do we need that our government and those that enforce the laws have been entirely co-opted by Wall Street? Remember that our Congress voted to give AT&T retroactive immunity from their criminal act of spying on the phone calls and e-mails of American citizens. Corporations are continually allowed to violate laws, kill workers, pollute the environment and steal pensions with complete impunity. A fine that represents less than 5% of the money that was embezzled or stolen is not a penalty sufficient to discourage similar behavior in the future. Who was paid off in this deal? Obviously this government does not represent the people. I agree with “iwonder”; blood in the streets will be coming soon to a city near you. If there is any justice it will include the prosecutors who refuse to do their job.
"A fine that represents less than 5% of the money that was embezzled or stolen is not a penalty sufficient to discourage similar behavior in the future."
As we all know, the clowns on the Hill actually believe they're convincing "The People" that these pocket change fines represent their concern for those of us who want justice. Laughable!
The fine should be a minimum, absolute minimum, of what was made from the behavior/crime/scam. In a perfect world, it would be doubled.
They should use this model for the "Little people" too .
Rob a bank of 2000$$ and rather then go to jail just pay back 50$$ as a fine with "No admission of Guilt".
Steal a 20000$$ car and rather then go to jail pay a 1000$$ fine with "No admission of guilt".
In all instances you get to keep the rest. It is now yours.
Oh and if you steal a pizza, rather then a lifetime jail sentence , you just have to return a slice and if you happened to eat it all the empty box will be sufficient.
Calm down guys. As outrageous as this case is, the reason the Justice Department doesn't try them in a criminal court is that it is very hard to find 12 jurors who would understand the details of the deals. The summary given in this article is not what the jury would hear. Defense lawyers would lay down such a thick layer of fog that no one would understand what happened.
So the gov't settles for money instead of taking a chance on losing the case.
I see. So in essence the citizens of the United States of America are just too stupid to understand what was happening and those at the TOP are too smart to be convicted of any crime.
Leave the big boys alone. They got lawyers!
Now where do YOU draw the line? Is there some cutoff point you have in mind where people should not be prosecuted for their crimes because they are just "too rich to jail"?
Is it a net worth of 10 million? 50 million....?
I did not say that I agree with the decision not to prosecute people at the bank. I said that prosecutors like to win cases and they are leery of taking on one they are not sure they can win. Also, yes I think, an average group of people (in a jury) could easily be confused by the details of such a case. In a trial, the jurors don't get just the headlines that we see in articles such as this one. They get reams of accounting information, pruposely designed by the lawyers to confuse them.
If you take seriously the concept of a fair trial, you should accept the premise that a defendant is innocent until the prosecutor proves him guilty. It is the prosecutor's job (not that of the media) to convince the jury that the guy is guilty. Hanging judges belong in John Wayne movies, not in a real courtroom, and the same is true for "hanging juries."
Consider this scenario. A true jury of their peers would consist of a dozen Wall Street financiers. They would understand the details of the case, and they would be able to decide if the defendant is guilty. But would you be satisfied with the decision if they found him not guilty? The legal system is not perfect, but it is all we have.
Have you ever heard of expert witnesses? And one of your points is that prosecutors should take only cases to trial that they know they can win? What, then, is the point of ever having juries? Also, your definition of "jury of their peers" is ridiculous. If your definition is used, would a jury in a murder case consist only of convicted murderers? Do you know what "specious" means?
Delete
Sorry, sheepherder, but first of all, patronizingly telling an apparently upset person, man or woman, to "calm down" is exactly like pouring water on a grease fire. It's simply the worst possible response.
This has always seemed obvious to me. But emotionally tone-deaf people-- persons with a low "emotional IQ"-- don't seem to get this. They think that being a Superior Voice of Reason should inspire submissive respect and do the trick.
That aside, your common-sense attempt to explain away the outrage and high dudgeon fails upon scrutiny.
It's true enough that the multiple-standards in prosecuting white-collar crime evolved in part because white-collar or corporate crime is indeed often so highly technical and abstruse in nature that it's bound to go over the heads of ordinary laypersons in a jury pool.
But one need only read some of "Corporate Crime Reporter" editor Russell Mokhiber's investigative pieces to be appalled at the extent to which the justice and business professionals work more as partners-- or cronies-- than adversaries in disposing of corporate crime.
In a manner reminiscent of the "EZ-Pass" innovations promoting efficient toll-road traffic, so-called Justice Departments have developed a vast range of alternative approaches to adjudication that substitute official winks, nods, and token financial penalties in lieu of rigorous prosecutions; corporations are routinely given mild slaps on the wrist, and the option of entering into voluntary agreements that avoid admissions of guilt, liability, and individual responsibility for blatant and intentional criminal conduct.
There are no Tim DeChristophers being hauled into court and prosecuted to the fullest extent of the law.
This may have begun, as you suggest, because of legitimate and inevitable difficulties inherent in prosecuting complex and bewildering interactions. But only a fatuous Pollyanna or Pangloss would conclude that the status quo makes the best of a difficult situation, and that the deals and arrangements that confer virtual personal immunity upon all of the participants (defendants) in exchange for a payoff constitutes "justice" and decently serves the common good.
The ultimate irony, or scam, is that the payouts in lieu of criminal prosecution simply become part of the cost of doing business; they are arguably equivalent to paying bribes and kickbacks, and have no real deterrent effect.
Because of the very complexity and obscurity of the territory that you cite, it's one of those situations where the only crime is getting caught. And that's a risk corporate executives are always willing to run; it's a professional challenge.
What you're really saying is that corporate criminals pretty much have all of us, including the government authorities charged to enforce the laws and see that justice is done, over a barrel. To me, only those who are complacent or not paying attention can comfortably tolerate this depraved status quo.
I do feel a little calmer now that I've gotten that off my chest, though, thanks. ;)
PS: I just saw your 3:08pm response, but I'm posting this anyway. No offense, but it just seems to me that your response boils down to "Yeah, it stinks, but given the limitations of the system the wiser reaction is to be OK with it."BTW, I haven't made a point of reading Mokhiber's writings. But just from what I've come across on CD and elsewhere, it's obvious that cases like this aren't a fluke or exception. If they were, it might make sense to just grin and bear it.However, this is par for the course. And how can any justice system that claims to be based on concepts like "fundamental fairness" rationalize operating with multiple standards based on sheer expediency?
"
The ultimate irony, or scam, is that the payouts in lieu of criminal prosecution simply become part of the cost of doing business..." That makes the fines tax deductible, too.
I'm not kidding.
Holder has got to go.
Everyone needs to see the outstanding documentary "Inside Job," narrated by Matt Damon. It goes into extensive detail about these C.D.O.'s, Credit Default Swaps, mortgage-backed securites and other derivatives, and how they were all invented and then bet against by their inventors, such as BoA, CitiGroup, Goldman, and the other TBTF asshats, currently making record profits. It really does an excellent job of describing the entire Wall Street casino, how it got to where it is, and how it is bringing Amereicha and the world to ruin. Highly recommend everyone go rent the DVD or stream it if you have NetFlix.
Yes, Demonstorm,
Inside Job was very well done. .........Here's a great article I read today that explains in plain English where this country is headed with $100's of Trillions invested in absolute $hit: .....http://theeconomiccollapseblog.com/archives/the-coming-derivatives-crisis-that-could-destroy-the-entire-global-financial-system
"We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly," the statement said.
Glad that's straightened out. They are contributers, serving and growing. For a while there, I though different.
It is headlines like this that will continue to be the oxygen of Occupy Wall Street; and it appears as if the Banksters, their cronies, lackeys, shills and enablers still are completely tone deaf public perception-wise.
And see also “The Fallacy of Corporate Personhood?” at Open Salon.com http://open.salon.com/blog/f_arouete/2011/09/18/the_fallacy_of_corporate_personhood
A criminal who broke into someone's house and stole $1000.00, paid a fine of $10.00, didn't apologize or admit that he did it or it was wrong and then said, "I am pleased to put this matter behind me and am focused on contributing to society, serving my fellow man and growing responsibly."
Then said criminal gets a $10,000 government loan at .01% interest. The victim is a little short on cash now, so said criminal can loan him or her some for 9% to serve their fellow man. The government's cash flow is now restricted, so said criminal can lend it some at the bargain rate of 8% to carry it through the tough times as a contribution to society. It is the responsible thing to do.
wave a flag
say a pledge
sing a war song
hold on to the dream
You took the words right out of my fingers.
Left to their own devices, Wall Street financial institutions will “stuff a portfolio with risky mortgage-related investments, sell it to unsuspecting customers and bet against it…without telling investors of its role or that it had made bets that the investments would fall in value (NY Times, Citigroup To Pay Millions to End Fraud Complaint, 10,20,11).” This is an abrogation of fiduciary responsibility, immoral, unethical, abusive and should be illegal. The reason I say “should be” is because neither the Justice Department or the Securities and Exchange Commission will say whether Citigroup had committed a crime.
When you perpetrate fraud to the tune of hundreds of millions of dollars, you are a first-rate, top of the line, head of the class, unsurpassed, consummate and sublime rip-off artist! Continue reading → http://outlierideas.com/