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Judge Not Ready To Sign Off On Citigroup/SEC Settlement

When Citigroup eked a $75 million settlement deal in July with the Securities and Exchange Commission (SEC) over claims it misled investors by failing to disclose $40 billion in risky mortgage-related holdings, many people thought Citigroup got off far too easy. Now, it appears a federal judge feels the same way.

U.S. Judge Ellen Huvelle said earlier this week that she wouldn’t approve the $75 million settlement and wants more information from the bank.

Citigroup first stated in 2007 that it had significantly reduced its exposure to mortgage securities by 45%, to $13 billion. That wasn’t the case, of course. In reality, Citigroup made a $40 billion understatement of its mortgage-related exposure.

The SEC then accused Citigroup of committing negligent – not intentional – fraud. No fraud allegations were filed against any executives at Citigroup, however. Instead, the SEC cited two men, former Citigroup Chief Financial Officer Gary Crittenden and former investor-relations head Arthur Tildesley, of engaging in “disclosure violations.”

Crittenden paid a $100,000 fine and Tildesley $80,000.

Like many people, Judge Huvelle has some questions for Citigroup, not the least of which is how the SEC settled upon the $75 million fine in the first place. Why didn’t federal regulators accuse Citigroup of intentional fraud? And, more important, why were only two individuals cited by the SEC? Surely there were others behind the obvious misdeeds.

Citigroup has until the end of September to get back to the judge with its answers.

Meanwhile, Citigroup shareholders are paying the price for Citigroup’s actions. Citigroup stock is down more than 90%.

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