SEC Settles with Citigroup – Public Loses?

In today’s New York Times there is an article by Gretchen Morgenson discussing the failure of the Securities and Exchange Commission to bring charges against persons responsible for financial institution misconduct.  The issue is viewed in the context of a recent settlement.

Earlier this month, the Securities and Exchange Commission announced an administrative settlement with two Citigroup entities in connection with municipal bond strategies that resulted in losses of about $2 billion for investors.  The settlement, in which Citigroup neither admitted or denied wrongdoing, requires the bank to pay $180 million.  The settlement named the two entities, Citigroup Alternative Investments, LLC, and Citigroup Global Markets, Inc.  It did not name any of the individuals involved in defrauding the investors.

This was a scheme that last from 2002 to 2008.  At the end the two funds imploded.  By 2009 investors were bringing private actions against the bank for misrepresenting the level of risk involved in the investment strategies.  In the same year attorneys for some of the private litigants met with the SEC staff to provide thousands of pages of evidence of violation of the U. S. securities laws.  Yet, the SEC did not reach its settlement for an additional six years.  Put another way, the SEC acted seven years after the implosion of the funds and failed to name any individuals in the administrative complaint.

The SEC (and for that matter the Justice Department) have been painfully slow to hold individuals responsible for wrongdoing at financial institutions.  Instead, the common practice is to name the financial institution or a component of such an institution and to reach a financial settlement with the named corporate defendant or respondent.  Typically, no individuals are named or charged in the complaint.  This is the case even in situations such as the current settlement where there appears to be significant evidence as to the individuals who are actually responsible for the wrongdoing.

While this and other settlements appear to be aggressive enforcement of the securities laws, in fact they are not.  In the current case $180 million will come from the shareholders of Citigroup, none of whom had any involvement in peddling the toxic investments to clients.  Those who actually devised the scheme and implemented it are left uncharged.  Such results lend credence to the claim that the rules are rigged to benefit the powerful.

To see The New York Times article, please click:  http://www.nytimes.com/2015/08/30/business/sec-settlement-with-citigroup-holds-no-one-responsible.html?ref=business&_r=0.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.