The Unprecedented Failure to Regulate Citigroup Continues

By Pam Martens and Russ Martens: August 27, 2014

Sanford (Sandy) Weill, the Man Who Put the Sprawling Citigroup Behemoth Together and Sat At Its Helm Until 2006

Sanford (Sandy) Weill, the Man Who Put the Sprawling Citigroup Behemoth Together and Sat At Its Helm Until 2006

Yesterday, Wall Street’s self-regulator, the Financial Industry Regulatory Authority (FINRA), charged Citigroup with cheating its customers out of fair prices on preferred stock trades — 22,000 times. Citigroup was fined a meager $1.85 million, ordered to pay $638,000 in restitution, allowed to neither deny or admit the charges, and sent on its merry way to loot the next unwary investor.

Why do we believe there will be more charges of malfeasance in Citigroup’s future? Because it is an unrepentant recidivist. Yesterday’s FINRA fine was the 408th fine that FINRA has levied against Citigroup Global Markets or its predecessor, Smith Barney, for trading violations, market manipulations or failure to supervise its traders or brokers.

And that’s just FINRA – the light-handed disciplinarian with industry ties. Citigroup has kept other Federal regulators, including the U.S. Justice Department, very busy as well.

It is now six years since Citigroup’s serial history of rogue conduct rendered it insolvent. Under the law, the U.S. government is not allowed to prop up insolvent banks with taxpayer money. But from 2007 to 2010, in the largest bank bailout in history, over $2.3 trillion was lavished on the serial recidivist Citigroup.

Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds on October 28, 2008. Less than a month later, Citigroup had blown through those bailout funds and required another $20 billion TARP infusion. But its situation was so wobbly that the government had to simultaneously provide another $306 billion in asset guarantees.

After Bloomberg News fought years of court battles to find out what Citigroup and other banks were getting in bailouts behind the dark curtain of the New York Fed, the public finally learned in 2011 that the Federal Reserve Bank of New York was providing trillions of dollars in below-market rate loans to Wall Street banks and foreign financial institutions. According to the Government Accountability Office, Citigroup received more in New York Fed loans than any other bank – over $2 trillion dollars. Many of its loans were made at rates below one percent while it was charging double digit interest rates to some of its struggling credit card customers.

Below is just a sampling of the milestones in Citigroup’s long march toward its well-earned reputation of a bank that neither its management nor its regulators can control. It is a siren call to fire both its management and its regulators.

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September 19, 2002: FTC Announcement —  “In the largest consumer protection settlement in FTC history, Citigroup Inc. will pay $215 million to resolve Federal Trade Commission charges that Associates First Capital Corporation and Associates Corporation of North America (The Associates) engaged in systematic and widespread deceptive and abusive lending practices.”  The firms were owned by Citigroup.

October 31, 2003: U.S. District Court Judge William Pauley signs a settlement order agreed to by multiple regulators for Citigroup to pay $400 million over issuance of fraudulent stock research.

May 28, 2004: The Federal Reserve announces a $70-million penalty against Citigroup Inc. and CitiFinancial Credit Co. over their handling of high-interest-rate “subprime” mortgages and personal loans.

May 31, 2005: SEC announces a $208 million settlement with Citigroup over improper  transactions by its proprietary mutual funds.

June 28, 2005: Citigroup agrees to pay the UK regulator, the FSA, $25 million over its “Dr. Evil” trade that manipulated the European bond market.

March 26, 2008: Citigroup settles a suit with Enron creditors for $1.66 billion over claims it aided and abetted Enron in hiding its debt.

August 26, 2008: California Attorney General Edmund Brown Jr. announces a settlement with Citigroup to return all monies improperly taken from customers through an illegal account sweeping program. According to the Attorney General: “Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund…The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

December 11, 2008: SEC forces Citigroup and UBS to buy back $30 billion in auction rate securities that were improperly sold to investors through misleading information.

February 11, 2009: Citigroup agrees to settle lawsuit brought by WorldCom investors for $2.65 billion.

July 29, 2010: SEC settles with Citigroup for $75 million over its misleading statements to investors that it had reduced its exposure to subprime mortgages to $13 billion when in fact the exposure was over $50 billion.

October 19, 2011: SEC agrees to settle with Citigroup for $285 million over claims it misled investors in a $1 billion financial product.  Citigroup had selected approximately half the assets and was betting they would decline in value.

February 9, 2012: Citigroup agrees to pay $2.2 billion as its portion of the nationwide settlement of bank foreclosure fraud.

August 29, 2012: Citigroup agrees to settle a class action lawsuit for $590 million over claims it withheld from shareholders knowledge that it had far greater exposure to subprime debt than it was reporting.

July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it toxic mortgage loans.

September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.

December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.

July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”

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