Citigroup, Two Executives Agree To Pay Total $75.18 Mln Penalty To Settle SEC Charges - Update

(RTTNews) - The U.S. Securities and Exchange Commission or SEC, has Thursday charged global financial services firm Citigroup, Inc. (C: News ) and two of its executives for misleading investors about its exposure to subprime mortgage-related assets. Citigroup has agreed to pay a $75 million penalty to settle the charges.

Additionally, the SEC has also charged one current and one former executive for making misleading statements in an SEC filing, and both have agreed to settle the charges with a total penalty payment of $180,000.

The former Chief Financial Officer Gary Crittenden agreed to pay $100,000, and the current head of cross marketing at Citigroup Arthur Tildesley, Jr. has agreed to pay $80,000. Tildesley is a former head of investor relations.

"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. In fact, billions more in CDO and other subprime exposure sat on its books undisclosed to investors," Director of the SEC's Division of Enforcement Robert Khuzami said in a statement.

The SEC alleged that Citigroup and the executives repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages. These occasions included a July 20 earnings call, a July 27 Fixed Income investors call, an October 1 earnings pre-announcement, and an October 15 earnings call.

SEC has charged both Crittenden and Tildesley of helping to draft and then approve the disclosures included in a Form 8-K filed with the SEC on October 1, 2007. The SEC charges that Crittenden and Tildesley caused Citigroup's filing to be misleading to investors, despite them receiving detailed briefing on valuation issues relating to the super senior tranches of CDOs in early September 2007.

SEC stated that Citigroup revealed in different statements and filings made between July 2007 and mid-October 2007 that its subprime exposure at its investment banking unit was $13 billion or less, contrary to the fact that it was more than $50 billion.

SEC noted that Citigroup reached the $13 billion figure by omitting two categories of subprime-backed assets, the "super senior" tranches of collateralized debt obligations and the "liquidity puts." These exposures of about $40 billion were not disclosed by Citigroup until November 2007, when their value declined.

Losses on the collateralized debt obligations - created by repackaging mortgage bonds into new securities - crippled New York-based Citigroup and triggered the bank's $45 billion federal bailout.

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