A federal judge has approved the $75 million securities fraud settlement reached between Citigroup and the US Securities and Exchange Commission. The investment bank had been accused of misleading investors about billions of dollars in possible losses from their exposure to high risk assets involving subprime mortgages. The SEC says that although holdings exceeded $50 billion, the broker-dealer had told clients that they were at $13 billion or lower.
US District Judge Ellen Segal Huvelle had initially refused to approve the settlement and questioned why only two Citigroup executives were being held accountable for the alleged misconduct. Last month, she said she would accept the agreement but only with certain conditions in place.
Under the approved accord, Citigroup must maintain an earnings committee and a disclosure committee for three years. A number of bank officials will also have to certify the accuracy of the earnings scripts and press releases. The revised settlement clarifies that the $75 million penalty is part of a Fair Fund pursuant to Section 308 of the Sarbanes-Oxley Act of 2002. The penalty will be distributed to investors that sustained financial losses because of Citigroup’s alleged misconduct.
Broker-dealers and their representatives can be held liable for misrepresenting or not presenting all material facts to an investor about his/her investment if that client ends up sustaining financial losses. By agreeing to settle, Citigroup is not denying or admitting to the allegations.
Related Web Resources:
Judge OKs Citigroup-SEC Accord on Mortgages, ABC News, October 19, 2010
Judge approves Citi’s $75M settlement with SEC, Bloomberg Businessweek, October 19, 2010
Read the SEC Complaint (PDF)
Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million, Stockbroker Fraud Blog, August 3, 2010
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