By Pam Martens and Russ Martens: November 30, 2016
Two days ago, a former Citigroup employee, Erin Daly, filed a 27-page lawsuit in Federal Court in Manhattan alleging gender discrimination and unlawful termination. On the same day, November 28, Daly simultaneously filed a complaint with the Department of Labor alleging she was retaliated against by Citigroup after she reported “violations of insider trading laws” to lawyers at the bank. It is illegal for U.S. banks to retaliate against whistleblowers.
According to the Federal lawsuit, less than two weeks after Daly reported the insider trading law violations to internal lawyers, she was terminated from the bank.
These are extremely serious charges against a mega Wall Street bank that would have gone belly up in 2008 had it not received $45 billion in equity infusions from the taxpayer, over $300 billion in asset guarantees from the government and more than $2.5 trillion in secret, cumulative loans from the Federal Reserve at below-market interest rates from 2007 to 2010.
These are also extremely serious charges because Citigroup became an admitted felon on May 20, 2015 over its role in the rigging of foreign currency trading. A behemoth Wall Street bank holding hundreds of billions of dollars in insured deposits backstopped by the taxpayer while simultaneously being a charged felon is not an admirable banking business model. Citigroup’s history of being serially charged with brazen violations of law by its regulators should have already resulted, in a rational world of finance, in its forced breakup a long time ago. (See highlights of charges below.)
The Federal Reserve, which oversees bank holding companies, has said it is looking at risk controls as well as the culture at the largest Wall Street banks. It should take a serious interest in the allegations being made by Daly. Her description in the Federal lawsuit of how hot Initial Public Offerings (IPOs) are handled at the bank as well as how insider information related to restricted Rule 144 stock is handled paints a portrait of a Wall Street institution running its operation by the seat of its pants rather than adhering to strict legal requirements.
This would certainly not be the first time that a conscientious whistleblower came forward at Citigroup only to be sent packing. The official report on the 2008 financial collapse, the worst since the Great Depression, singled out Citigroup and how it treated Richard Bowen, another Citigroup whistleblower. The Financial Crisis Inquiry Commission report notes the following:
“At Citigroup, meanwhile, Richard Bowen, a veteran banker in the consumer lending group, received a promotion in early 2006 when he was named business chief underwriter. He would go on to oversee loan quality for over $90 billion a year of mortgages underwritten and purchased by CitiFinancial. These mortgages were sold to Fannie Mae, Freddie Mac, and others. In June 2006, Bowen discovered that as much as 60% of the loans that Citi was buying were defective. They did not meet Citigroup’s loan guidelines and thus endangered the company—if the borrowers were to default on their loans, the investors could force Citi to buy them back. Bowen told the Commission that he tried to alert top managers at the firm by ‘email, weekly reports, committee presentations, and discussions’; but though they expressed concern, it ‘never translated into any action.’ Instead, he said, ‘there was a considerable push to build volumes, to increase market share.’ Indeed, Bowen recalled, Citi began to loosen its own standards during these years up to 2005: specifically, it started to purchase stated-income loans. ‘So we joined the other lemmings headed for the cliff,’ he said in an interview with the FCIC.
“He finally took his warnings to the highest level he could reach—Robert Rubin, the chairman of the Executive Committee of the Board of Directors and a former U.S. treasury secretary in the Clinton administration, and three other bank officials. He sent Rubin and the others a memo with the words ‘URGENT—READ IMMEDIATELY’ in the subject line. Sharing his concerns, he stressed to top managers that Citi faced billions of dollars in losses if investors were to demand that Citi repurchase the defective loans.”
Bowen told 60 Minutes in 2011 that after he put his complaints in writing, he was told not to come into the office. His exact words were: “I no longer was physically with the organization.”
Like Bowen, Daly had received outstanding reviews prior to her whistleblowing. According to the Federal complaint, she had received the CEO Award for Excellence in 2012.
A Sampling of Settled Charges Against Citigroup Since 2008:
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.”
November 2014: Citigroup pays more than $1 billion to settle civil allegations with regulators that it manipulated foreign currency markets. Other global banks settled at the same time.
May 20, 2015: Citicorp, a unit of Citigroup becomes an admitted felon by pleading guilty to a felony charge in the matter of rigging foreign currency trading, paying a fine of $925 million to the Justice Department and $342 million to the Federal Reserve for a total of $1.267 billion.
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