NEW YORK—Citigroup Inc. agreed to pay $75 million to settle a lawsuit from the U.S. Securities and Exchange Commission (SEC), which alleged that the bank hid from its investors large losses on subprime mortgage investments during the real estate crash of 2007.
According to the SEC, the New York-based commercial banking giant tried to mislead investors and analysts in its financial filings, and calls with analysts and the press, underreporting its exposure to toxic subprime mortgage-backed assets.
In addition, the bank’s former Chief Financial Officer Gary Crittenden agreed to pay a fine of $100,000, while its former Investors Relations chief Arthur Tildesley agreed to pay $80,000.
“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,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a statement. “In fact, billions more in CDO ( collateralized debt obligation) and other subprime exposure sat on its books undisclosed to investors.”
“The rules of financial disclosure are simple—if you choose to speak, speak in full and not in half-truths,” he added.
The lawsuit relates to Citigroup’s public disclosures in 2007, where in the third quarter, the bank reported that its subprime mortgage exposure was less than $13 billion, a figure that the SEC said actually exceeds $50 billion. The bank did not disclose the additional amounts until losses mounted late in 2007.
The underreporting of toxic assets therefore sent a message to shareholders, investors, and its customers that the bank was financially healthier than it actually was.
The bank was the hardest hit of the major U.S. banks during the financial crisis, needing a $45 billion taxpayer bailout from the U.S. Treasury. It paid its government obligations back in full earlier this year.
According to the SEC, the New York-based commercial banking giant tried to mislead investors and analysts in its financial filings, and calls with analysts and the press, underreporting its exposure to toxic subprime mortgage-backed assets.
In addition, the bank’s former Chief Financial Officer Gary Crittenden agreed to pay a fine of $100,000, while its former Investors Relations chief Arthur Tildesley agreed to pay $80,000.
“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,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a statement. “In fact, billions more in CDO ( collateralized debt obligation) and other subprime exposure sat on its books undisclosed to investors.”
“The rules of financial disclosure are simple—if you choose to speak, speak in full and not in half-truths,” he added.
The lawsuit relates to Citigroup’s public disclosures in 2007, where in the third quarter, the bank reported that its subprime mortgage exposure was less than $13 billion, a figure that the SEC said actually exceeds $50 billion. The bank did not disclose the additional amounts until losses mounted late in 2007.
The underreporting of toxic assets therefore sent a message to shareholders, investors, and its customers that the bank was financially healthier than it actually was.
The bank was the hardest hit of the major U.S. banks during the financial crisis, needing a $45 billion taxpayer bailout from the U.S. Treasury. It paid its government obligations back in full earlier this year.
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