Citigroup

Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses

Published on: August 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley says it may sustain $1.7B in losses over a number of securities fraud cases related to subprime mortgage deals. Citigroup Inc.’s (C.N) Citibank is the plaintiff of the securities lawsuit over the Capmark VI CDO and STACK 2006-1 CDO deals, while there are 15 plaintiffs seeking punitive damages over Cheyne Finance, a structured investment vehicle. Morgan Stanley is also reporting losses over a mortgage-backed security deal involving MBIA Corp.

Our securities fraud attorneys would like you to contact us if you are someone who sustained financial losses in any of these MBS deals with Morgan Stanley. Here are more details about the cases:

• Morgan Stanley says the losses in the Citibank securities fraud lawsuit may be a minimum of $269M over a credit default swap on the Capmark VI CDO deal and another one on the credit default swap involving the STACK 2006-1 CDO deal.

Citigroup Chair Says Bank’s Crisis is Over

Published on: April 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

At the financial firm’s annual shareholder meeting, Citigroup chairman Richard D. Parsons says that even though there will be challenges this year, the investment bank is “clearly through the crisis.” Parsons statement reflects a significant shift for Citibank from last April when the financial firm made its first profit since the 2007 financial collapse and the government was still in possession of a large ownership stake. Citigroup, which received three government bailouts, has since paid back the Treasury Department and reported profits for five quarters in a row. Most recently, the investment bank has just reported a $3 billion profit.

The New York Times says that unlike in recent years when Citigroup shareholders that attended the annual meeting would complain about board members or former US Treasury Secretary Robert E. Rubin, this year, the shareholders that did show up primarily complained that Citi’s stock price would have to hit almost $600 for them to break even on shares.

The bank’s shares, which used to trade at over $50 each, now trade at under $5 dollars. After the reverse share split, share prices will rise to approximately $45. Each investor’s total, however, will go down by 90%.

Over 95% of shareholders had approved the stock split. At the meeting, Citi’s chief executive Vikram S. Pandit explained that while the share count was changing the value of ownership position was not. He also spoke of the benefits of drawing in institutional investors who couldn’t buy shares of companies that had stock that traded under $10. Pandit said there was potential for short-sellers to beat down the stock.

Related Web Resources:
Citi’s Annual Meeting Ceases to Be a Battleground, New York Times, April 21, 2011
Citi CEO tries to shed bank’s “survivor” image, Reuters, April 21, 2011

More Blog Posts:
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients, Stockbroker Fraud Blog, December 13, 2010
Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010 Continue Reading ›

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses

Published on: April 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In what is being called the largest award that a major Wall Street broker-dealer has been ordered to pay individual investors, the Financial Industry Regulatory Authority has ordered Citigroup to pay $54.1 million to investors Suzanne Barlyn and Randall Smith over investment losses they sustained on high risk municipal bond funds that lost 77% of their value during the financial crisis.

Richard Zinman, formerly of Citi’s Smith Barney unit, was the broker for Murdock, a venture capital investor, and Hosier, a retired patent lawyer. Zinman left Citi soon after the funds blew up. During the arbitration hearing, he testified on behalf of the two men, saying that Citi did not tell its brokers how risky and volatile the funds in fact were. Zinman now works for Credit Suisse Group.

Citigroup has been under fire for awhile now over its municipal bond funds. Geared towards wealthier clients, investments were a minimum of $500,000. The bond funds were supposed to deliver returns a few percentage points above that of municipal bonds by borrowing up to $7 for every $1 invested. The proceeds were placed in mortgage debt and municipal bonds. Unfortunately, the municipal bond funds’ value dropped when the mortgage market started to fail. After Citi brokers complained, however, the financial firm offered share buybacks that lowered investor losses to approximately 61%.

As part of this case, Citi must pay $17 million in punitive damages, $3 million in legal fees, and $21,600 for the hearing free expense, which is normally divided between the parties involved. Prior to this award, the largest one Citi was ordered to pay against a bond-fund claimant was $6.4 million.

Related Web Resource:
Citigroup Loses Muni Case, The Wall Street Journal, April 13, 2011
Muni bonds hit by more selling on default fears, Los Angeles Times, January 12, 2011

More Blog Posts:
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011
Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011
Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Institutional Investor Securities Blog, September 29, 2010 Continue Reading ›

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients

Published on: December 13, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Sanjeev Jayant Kumar Shah, a former Smith Barney financial services adviser, has pleaded guilty to one count of securities fraud and three counts of wire fraud over his involvement in a securities scam to bilk clients of Citibank and his firm. Shah was charged with diverting about $3.25 million from a foreign bank client and fabricating documents that he claimed were from bank representatives.

He is also accused of falsely saying that the transfers were required for bond purchases and that he would send statements showing these purchases. Prosecutors say that he attempted to cover up the scam by telling clients that a computer mistake had kept the bonds from showing up online bank statements and that had had bought the bonds for the bank.

The securities fraud charge comes with a 20 year maximum penalty plus a fine. Each wire fraud charge carries a maximum 30 years in prison penalty and also a fine.

Shah was at Citigroup unit Smith Barney for 3 ½ years. Citigroup says that it was the one that brought the case to the attention of the Department of Justice.

Securities Fraud
Our securities fraud lawyers are committed to helping our clients recover their financial losses. The most common investor claims against brokers and investment advisers can involve issues such as:

• Unsuitability • Registration violations • Margin account abuse • Unauthorized trading • Breach of fiduciary duty • Breach of contract • Failure to execute trades • Overconcentration • Negligence • Churning • Misrepresentation and omissions • Failure to supervise
Read the guilty plea, Justice.gov, November 24, 2010 (PDF)

Former Smith Barney adviser admits $3 million fraud, Reuters, November 24, 2010
Former Smith Barney adviser admits $3 mln fraud, CNBC, November 24, 2010 Continue Reading ›

Citigroup Seeking to Dismiss $11.6 Million Securities Arbitration Award to “Dallas” TV Star Larry Hagman

Published on: November 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

TV star Larry Hagman, best known for playing the roles of Texas oil tycoon JR Ewing on “Dallas” and Major Anthony Nelson on “I Dream of Jeannie,” recently won an $11.6 million securities fraud arbitration award against Citigroup. The Financial Industry Regulatory Authority says that the award is the largest that has been issued to an individual investor for 2010 and the ninth largest ever. Citi Global Markets is now seeking to dismiss the award.

The investment firm contends that the arbitration panel’s chairman did not disclose a possible conflict of interest. In its petition, Citi cites a FINRA rule obligating arbitrators to reveal such conflicts that could prevent them from issuing an impartial ruling. The financial firm claiming that because the arbitration panel head was once a plaintiff in a lawsuit that dealt with the same type of claims and subject matter, he had an undisclosed potential conflict. Hagman’s legal team have since responded with a memo arguing that the arbitrator’s lawsuit was not related to this complaint and did not involve a securities investment, the same parties, or the same facts.

Hagman and his wife Maj had accused Citigroup of securities fraud, breach of fiduciary duty, and other allegations. They claimed financial losses on bonds and stocks and a life insurance policy. In addition to the arbitration award, which consists of $1.1 million in compensatory damages and $10 million in punitive damages that will go to a charity of Hagman’s choice, Citigroup must also pay a 10% interest on the award.

Related Web Resources:
Messing With J.R., Take Four, NY Times, November 23, 2010
Actor Larry Hagman Wins $12 Million in Finra Case With Citigroup, Bloomberg, October 7, 2010

Citigroup’s petition to dismiss award to Larry Hagman

Citigroup, Stockbroker Fraud Blog Continue Reading ›

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling

Published on: November 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to a district court ruling, investors can proceed with certain securities fraud charges against Citigroup and a number of its directors over the alleged misrepresenting of the risks involved in mortgage-related investments (including auction-rate securities, collateralized debt obligations, Alt-A residential mortgage-backed securities, and structured investment vehicles). However, the majority of claims involving pleading inadequacies have been dismissed. The securities lawsuit seeks to represent persons that bought Citigroup common stock between January 2004 and January 15, 2009.

Current and ex-Citigroup shareholders have said that as a result of the securities fraud, which involved the misrepresentation of the risks involved via exposure to collateralized debt obligations, they ended up paying an inflated stock price. The plaintiffs are accusing several of the defendants of selling significant amounts of Citigroup stock during the class period. They also say that seven of the individual defendants certified the accuracy of certain Securities and Exchange Commission filings that were allegedly fraudulent. They plaintiffs are claiming that there were SEC filings that violated accounting rules because of the failure to report CDO exposure and value such holdings with accuracy.

The plaintiffs claim that the defendants intentionally hid the fact that billions of dollars in CDOs hadn’t been bought. They also said that defendants made misleading statements that did not properly make clear the subprime risks linked to the Citigroup CDO portfolio.

The defendants submitted a dismissal motion, which the court granted for the most part. Although the court is letting certain CDO-related claims to move forward, it agrees with the defense that because the plaintiffs failed to raise an inference of scienter before February 2007 (when the investment bank started buying insurance for its most high risk CDO holdings), the claims for that period cannot be maintained. The court also held that the plaintiffs failed to plead that seven of the individual defendants had been aware of Citigroup’s CDO operations. As a result, the court determined that there can be no finding of scienter in regards to the individuals.

The court, however, did that the plaintiffs adequately pleaded securities fraud claims against Citigroup, Gary Crittenden, Charles Prince, Thomas Maheras, Robert Druskin, David C. Bushnell, Michael Stuart Klein, and Robert Rubin for misstatements made about the bank’s CDO exposure between February and November 3, 2007. The plaintiffs also adequately pleaded securities fraud claims against Citigroup and Crittenden for Nov. 4, 2007, to April 2008 period.

Citigroup Global Markets to Pay Back $95.5M Over ARS Sold to LandAmerica Exchange Fund

Published on: November 11, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A federal bankruptcy judge has approved a settlement involving Citigroup Global Markets Inc. agreeing to repay $95.5 million to clients who sustained auction-rate securities related-losses. The ARS were told by Citigroup to LandAmerica 1031 Exchange Services Inc. before the latter folded in 2008. The ARS had been valued at about $120 million. The repurchase rate that clients are getting is reportedly better than what the ARS can be sold for now.

Under the approved securities settlement, these creditors should recover a little over 50% of their financial losses. The distribution of the money should begin taking place in December.

LandAmerica 1031 Exchange Services Inc. and parent company LandAmerica Financial Group Inc. filed for Chapter 11 bankruptcy in November 2008. Over 250 clients had placed proceeds from investment property sales in the exchange. Their intention was to defer capital gains taxes while searching for other properties to purchase.

Unfortunately, because the exchange company invested some of the funds in ARS, when the market froze and LandAmerica filed for bankruptcy, the investors became unable to access their money. At the time of the bankruptcy, Landmark held $201.7 million in ARS. $30 million of the securities had sold.

Meantime, the US Securities and Exchange Commission has received complaints claiming that Citigroup engaged in misrepresentation and securities fraud related to the credit worthiness and liquidity of the securities.

Related Web Resources:

Stockbroker Fraud Blog

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge

Published on: October 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

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 Continue Reading ›

Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors

Published on: September 29, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Judge Ellen Segal Huvelle says she will approve the $75 securities settlement between Citigroup and the SEC once the agreement includes changes that the bank has already made to its disclosure policy in the agreement. The federal judge says she wants the changes added to the settlement terms so that executives can’t revise them. She also wants the $75 million used to compensate shareholders who lost money because of Citigroup’s misstatements.

Last month, Huvelle had refused to approve the settlement over Citibank’s alleged failure to fully disclosure its exposure to subprime assets by almost $40 billion. The SEC accused the investment bank of misleading investors and telling them that its exposure was only $13 billion. When questioning the agreement, Huvelle asked why Citigroup shareholders should have to pay for the bank executives’ alleged misconducts. She also wanted to know why only two individuals were pursued.

The SEC had also filed cases against former CFO Gary Crittenden and ex-investor relations head Arthur Tildesley Jr. Both men have settled the cases against them without denying or admitting wrongdoing.

Despite giving conditional approval of the settlement, Huvelle noted that she didn’t think the $75 million would “deter anyone” unless Citibank abided by the changes to the disclosure policy. She also noted that the bank was “doing a disservice to the public” because other Citigroup executives were not held accountable for their alleged involvement.

The Wall Street Journal reports that lawmakers and others have becoming extremely frustrated at the considerably small number of senior executives that have been charged in connection with the financial debacle that has impacted Wall Street. The SEC has said that it can only file charges when there is sufficient evidence. Meantime, defense attorneys have argued that the multibillion dollar losses by investment firms were a result of bad business calls and not intentional fraud.

Related Web Resources:
Citigroup’s $75 Million Settlement With SEC Gets Green Light — Almost, Law.com, September 28, 2010

US court approves SEC settlement with Citi, Financial Times, September 24, 2010

Judge Won’t Approve Citi-SEC Pact, Wall Street Journal, August 17, 2010

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million

Published on: August 3, 2010 | by Shepherd Smith Edwards & Kantas, LLP

For $75 million, Citigroup will settle federal allegations that it failed to disclose that its subprime mortgage investments were failing while the market was collapsing. This is the first securities fraud case centered on whether investment banks fairly disclosed their own financial woes to shareholders.

Unlike the Goldman Sachs case, which resulted in a $550 settlement and involved allegations that the investment bank misled investors, Citigroup is accused of misleading its shareholders. This also marks the first time the SEC has filed securities fraud charges against very senior bank executives for their alleged roles in subprime mortgage bonds.

The SEC contends that Citigroup failed to reveal the true nature of its financial state until November 2007. Just that summer the investment bank told investors that it had about $13 billion of exposure to subprime mortgage related-assets that were declining in worth. However, Citigroup left out about $43 billion of exposure to similar assets that bank officials thought were very safe.

Key evidence against Citigroup centers on an announcement that it prepared for investors that cautioned that the quarter was likely going to be one of lower earnings in the fall of 2007. However, the investment bank did not reveal its full subprime exposure. Former Citigroup investor relations head Arthur Arthur Tildesley Jr., who has agreed to pay an $80,000 fine over allegations he omitted key information in the shareholder disclosures, is accused of preparing the statement. Former chief financial officer Gary L. Crittenden, who has settled the SEC case against him for $100,000, recorded the audio message to investors.

The government was eventually forced to bail out the investment bank. Citigroup is not admitting to or denying the charges by consenting to settle. Now, however, the investment bank has to defend itself from private shareholder complaints.

Related Web Resources:
SEC Charges Citigroup and Two Executives for Misleading Investors About Exposure to Subprime Mortgage Assets, SEC, July 29, 2010
Citigroup Pays $75 Million to Settle Subprime Claims, NY Times, July 29, 2010
Citigroup agrees $75m fraud fine, BBC News, July 29, 2010 Continue Reading ›