Citigroup Background Information

The FINRA fined Citigroup Global Markets, Inc., $3 million for using misleading materials in retirement seminars and meetings to entice BellSouth employees in North and South Carolina. Citigroup must also pay over $12 million to 200+ of the victims.

The FINRA order found that Citigroup failed to adequately supervise a team of brokers who used misleading sales materials during dozens of meetings for hundreds of employees of BellSouth Corporation. Most of the employees were unsophisticated investors with little experience in investing who were offored packages to retire early. They were enticed to cash out their pensions and invest the proceeds at Citigroup.

The victims include BellSouth workers, many who worked as operators, installers and line persons for decades to prepare for retirement. BellSouth is now a unit of AT&T, Inc. “Many BellSouth employees gave up secure pensions, believing they could afford to retire early, but ended up losing substantial amounts from their retirement nest eggs,” an FINRA official stated.

The takeover of Citicorp by Travelers was deemed illegal. Existing law, the Glass-Stegall Act, did not allow banks to merge with insurance underwriters.

Yet, lawyers for the new financial giant, found the Federal Reserve could grant it a two year trial period before the insurance underwriting division must be divested. Weill and his counterpart at Citicorp went to work to change the law before that expiration date. Through efforts of heavyweight lobbyists, even former President Gerald Ford, the law was finally changed in 1999 with the passing of the Gramm-Leach-Bliley Act.

Oddly enough, the company soon spun off its Travelers Property and Casualty insurance underwriting business deeming it as a drag on Citigroup stock price. The brokerage and banking unites attempted to co-exist, but too many egos were at work. Infighting between corporate bankers and investment bankers culminated with a drunken skirmish between the heads at a company retreat led to the ousting of the banking head.

As Federal Regulators including the SEC looked the other way, New York Attorney General Elliott Spitzer embarked upon an investigation of Wall Street, with Citicorp and other major firms at the center of the scandal. These firms were accused of having struck secret deals with companies in which the firms’ stock research division would rate a company a “Buy” to entice that company to hire the firm’s investment banking division. Implicated by the scandal were officials at CitiGroup, primarily Citigroup’s Jack Grubman. Sandy Wiell was himself investigated but not formerly charged.

Citigroup was accused of assisting Enron, WorldCom, Parlamat and other companies hide losses through loans to those companies and/or through third party financial arrangements which allegedly overstated assets and/or revenues or reduced liabilities visible on the balance sheets of those companies, thus misleading shareholders. Claims, including for “fraud on the market”, were filed against Citigroup and others. In May 2004 the company agreed to pay $2.65 billion, or $1.64 billion after tax, to settle a class action lawsuit brought on behalf of purchasers of WorldCom securities. Litigation is at various states against Citigroup regarding Enron and Parlamat.

Citigroup removed three senior executives in the wake of a banking scandal in Japan. The scandal involved the Private Bank, the division that deals with very wealthy customers. Some of the accusations included sales of complex securities to the unwary elderly that would likely not mature in their lifetime, violating the SEC regulations as well as business ethics. This caused the Japanese regulators to shut down the Private Bank.

In 2004, Citigroup was criticized for disrupting the European bond market by rapidly selling 11 billion worth of bonds on the MTS Group trading platform, driving down the price, and then buying it back at cheaper prices. In a reportedly related action the U.S. Federal Reserve refused for months to rule on Citigroup’s application to acquire a Texas Bank as a result of these claims.

As is a major partner of Brasil Telecom, Citigroup was implicated in charges related to a highly controversial deal executed with pension funds of Brazilian state-owned companies. According to allegations, these funds would have a put option against them for a value deemed far above arm’s-length market levels. After public outcry in Brazil, the deal was partly annulled by a federal court and the matter was investigated by a panel of Brazilian congress people.

Due to the filing of a class action lawsuit for improper late fees, Citibank elected to lobby Congress, to pass legislation that would limit class action lawsuits to 5 million dollars unless they were initiated on a federal level (Class Action Fairness Act of 2005). Many consumer advocate websites report that Citibank is still improperly assessing late fees.

In March 2006, the Australian corporate regulator ASIC filed penalty proceedings in the Federal Court against Citigroup’s global markets subsidiary in Australia. ASIC has alleged that Citigroup, acting as an advisor to Toll Holdings in its bid to takeover Patrick Corporation, violated Australian law by using its insider knowledge of the takeover bid for profitable gain when Patrick’s share price jumped 13% during the period after the takeover bid went public.