The Securities and Exchange Commission Thursday charged Citigroup with misleading investors about its exposure to subprime mortgage-related securities.
The SEC charged one current and one former executive for actions that led to misleading statements about the company’s risks being included in a filing with the SEC.
“Citigroup boasted of superior risk management skills in reducing its subprime exposure to approximately $13 billion. In fact, billions more in CDO and other subprime exposure sat on its books undisclosed to investors,” said Robert Khuzami, director of enforcement.
The SEC said 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 said the exposure in its investment banking unit to sub-prime mortgages was $13 billion or less, when in fact it was more than $50 billion.
Citigroup agreed to pay a $75 million penalty.
Former chief financial officer Gary Crittenden agreed to pay $100,000 and former head of investor relations Arthur Tildesley, Jr. agreed to pay $80,000. Tildesley is still with Citigroup, in another capacity.
Khuzami said Citigroup failed to disclose billions of dollars worth of collateralized debt obligations and other subprime securities.
Goldman Sachs Group recently agreed to pay $550 million in a dispute with the SEC over how it marketed a CDO, as the subprime market started to crash.
According to the SEC's complaint, filed in U.S. District Court for the District of Columbia, Citigroup represented in earnings calls and public filings from July 20 to Oct. 15, 2007, that its investment bank's subprime exposure was $13 billion or less and had declined over the course of 2007.
However, the $13 billion figure reported by Citigroup omitted two categories of subprime-backed assets: "super senior" tranches of collateralized debt obligations (CDOs) and "liquidity puts." Citigroup had more than $40 billion of additional subprime exposure in these categories, which it didn't disclose until November 2007 after a decline in their value, the SEC said.
Crittenden and Tildesley were repeatedly provided with information about the full extent of Citigroup's subprime exposure, the SEC said.
Crittenden received a detailed briefing on valuation issues relating to the super senior tranches of CDOs in early September 2007, it said. Tildesley received information that same month that discussed the possibility that Citigroup's disclosures could be misleading because they did not include the amounts of the super senior tranches and the liquidity puts.
The SEC's order finds that both Crittenden and Tildesley helped draft and then approved the disclosures that were included in a Form 8-K filed with the SEC on Oct. 1, 2007.
