Compliance

SEC Investigates Citigroup Over Disclosures In Crisis-Hit Debt Funds

Tom Burroughes, Group Editor, London, 8 November 2010

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The US Securities & Exchange Commission is investigating some Citigroup debt funds to check if the US bank adequately told investors about the funds' risk levels, the Wall Street Journal said, citing unnamed sources.

The SEC had also subpoenaed the bank's former brokers for testimony, according to the report. Citigroup's debt funds had used borrowed money to invest in municipal bonds and mortgage debt. This strategy collapsed after the US mortgage market crashed in the credit crisis. The funds dropped in value by about 77 per cent at one point in March 2008.

Citigroup had offered share buybacks that reduced investor losses to about 61 per cent, the report said.

Three California-based brokers, who worked for the then Citigroup unit Smith Barney, concluded the bank did not adequately disclose the funds' risks and had also mismanaged them, the newspaper said, citing people familiar with the regulatory probe. The brokers, who resigned in 2008 in a dispute over Citigroup's handling of the funds, had received subpoenas from the SEC, the report said.

They spoke to the SEC in 2009 and again this past summer, the paper’s sources said.

The SEC has declined to comment.

Citigroup could not be reached at the time of going to press.

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