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Citigroup: A Repeat Offender and Then Some

Citigroup is no stranger to accusations of fraud. It’s faced such charges five times since 2003 when the Securities and Exchange Commission (SEC) accused the company’s main broker/dealer subsidiary of securities fraud. Each time, Citigroup paid a fine, while neither admitting or denying the SEC’s claims.

As reported Nov. 4 by Bloomberg, Citigroup’s pattern of breaking the same laws over and over again seems to continue with the apparent blessing of regulators.

Last month, the SEC filed another fraud complaint against Citigroup. In that case, the SEC accuses Citigroup of marketing $1 billion of collateralized debt obligations to investors in 2007 without disclosing that its own traders were responsible for picking many of the assets for the deal and then bet against them.  According to the complaint, Citigroup made at least $160 million in profits from the CDO deal. For this, Citigroup agreed to pay $285 million, including a $95 million fine. In reality, that’s a small amount when compared to the $3.8 billion in earnings that Citigroup posted last quarter.

Here’s the problem: Every time the SEC settles a fraud case with Citigroup, Citi turns around and asks for and receives a waiver from the SEC to allow it to keep its business operating as usual. Meanwhile, the SEC keeps accusing Citigroup of breaking the same laws again, yet grants more waivers while never revoking any of the old ones.

Jed Rakoff is the U.S. district judge overseeing the latest Citigroup case. It’s possible he may put an end to this charade. At the very least, he’s fired off a number of questions for both Citigroup and the SEC. Among them, he wants to know what the SEC does to maintain compliance and how many contempt proceedings against large financial entities the regulator has brought in the past decade as a result of violations of prior consent judgments.

A hearing in the Citigroup case is set for Nov. 9.

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