Citigroup

Wachovia and Citigroup Settle Michigan ARS Case for $880 Million

Published on: April 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Wachovia Capital Markets LLC and Citigroup Global Markets Inc. will settle allegations by the Michigan Office of Financial and Insurance Regulation that the firms misled investors who bought auction rate securities by paying a combined $880.3 million-$717 million for Citigroup and $159 million for Wachovia-to reimburse clients. The OFIR says the firms misled clients into thinking ARS were liquid like cash and were surprised when the market collapsed, freezing their assets. OFIR claims the securities were sold and marketed as if they were conservative investment and that the firms did not give investors information about the risks involved.

Both firms will also pay $2.3 million to Michigan to resolve the ARS charges. Citigroup will pay $1.72 million per an administrative consent order and Wachovia will pay $654,000. According to OFIR, 90% of the funds will be placed in a general fund for the state, while the rest will go to the Michigan Investor Protection Trust for consumer education about a number of issues, including investment fraud.

Just this March, Wachovia and Citigroup said they would pay back California investors over $4.7 billion after the investment firms were accused of misleading investors about investing in ARS. Also last month, the North American Securities Administrators Association set up a Web site so investors could find out how to file arbitration claims for damages stemming from ARS losses.

Citigroup, Wachovia in $876M Mich. ARS Buyback, The Bond Buyer, April 17, 2009
Michigan regulators detail settlement with Citigroup, Wachovia over auction rate securities, Associated Press, April 16, 2009

Related Web Resources:
North American Securities Administrators Association

Michigan Office of Financial and Insurance Regulation
Continue Reading ›

Magistrate Judge Tells Texas Court that Citigroup Global Markets Holding Inc. Should Not Be Denied Arbitration Award for Unpaid Promissory Note

Published on: April 17, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US District Court for the Western District of Texas should confirm an arbitration award for brokerage firm Citigroup Global Markets Holding Inc. against a former employee who failed to pay his promissory note-so says magistrate judge Nancy Stein Nowak.

Nowak argued before the Texas court that even if “equitable reasons” exist for why stockbroker Ernest Elam shouldn’t pay the brokerage firm the money he owes for the note, the arbitrator’s decision must still be upheld because the former Citigroup broker failed to provide a reason for why he shouldn’t pay that falls under the Federal Arbitration Act.

Last July, the arbitration panel found in favor of Smith Barney and Elam was told to pay the investment firm $193,484.28, $15,768.70 in legal fees, and 5% interest per annum for any balance that is not paid. In turn, Elam asked for the award to be vacated because he claims that:

• The promissory note was a forgivable lone.
• He was misled about repayment requirements.
• Smith Barney sought repayment because the broker’s departure caused the branch manager’s end of the year bonus to go down.
• Smith Barney benefits financially from commissions through Elam’s previous clients.

According to Nowak, Citigroup Global Markets Holdings Inc. and Citigroup Global Markets Inc. (as Smith Barney) had asked for confirmation of the award against Elam for the 2004 note he defaulted on in the original principal amount of $270,878. The magistrate judge says that according to the FAA, an arbitration award can only be vacated if:

• The award was obtained through fraud, corruption, or undue measures.
• The arbitrators were at least partially corrupt or engaged in misconduct or went beyond the scope of their powers.

Therefore, Novak contends that the district court cannot vacate the award and should grant Smith Barney’s motion.
Continue Reading ›

Wells Fargo, Goldman Sachs, JP Morgan Chase, Citigroup, UBS Securities, Bank of America, Moody’s Investment Services, and Fitch Ratings are Among Defendants Sued On Behalf of Wells Fargo Certificate Investors for Alleged Securities Fraud Violations

Published on: March 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Boilermaker-Blacksmith National Pension Trust is suing a number of investment banks, credit rating agencies, and underwriters, including Wells Fargo, WFASC, Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Bear Stearns & Co., Countrywide Securities Corp., Deutsche Bank Securities Inc., JPMorgan Chase Inc., Bank of America Corp., Citigroup Global Markets Inc., McGraw-Hill Cos., Moody’s Investor Services Inc., and Fitch Ratings Inc., over allegations that they made false statements in the prospectus and registration statement for certificates that were collateralized by Wells Fargo Bank, NA. The lawsuit, filed on behalf of thousands of investors that bought the certificates from Wells Fargo Asset Securities Corp., accuses the defendants of violating the 1933 Securities Act by engaging in these alleged actions.

According to the securities fraud lawsuit, the defendants concealed from investors that Wells Fargo revised its underwriting practices in 2005 and became involved in high risk subprime mortgage lending. The complaint contends that WFASC and a number of defendants submitted to the Securities and Exchange Commision prospectus and registration statements representing that the mortgages were backed by certificates that were subject to specific underwriting guidelines for evaluating a borrower’s creditworthiness. The plaintiffs contend that these prospectuses and registration statements were false because they neglected to reveal that the Wells Fargo-originated certificates were not in accordance with the credit, underwriting, and appraisal standards that Wells Fargo, per the companies, had supposedly used to approve mortgages.

The lawsuit also claims that because Wells Fargo decided to enter the subprime mortgage mortgage market in 2005, the investment bank had to take significant write-downs in 2008 because of its massive exposure to the subprime market and the WFASC certificates that these mortgages backed dropped significantly in value. The Boiler-Blaksmith fund reports that it lost about $5 million, which is more than half of what it invested.

Related Web Resources:
Read the Complaint

The Boilermakers National Funds
Continue Reading ›

Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use

Published on: February 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended-to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo’s chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends, Bloomberg.com, February 24, 2009 Continue Reading ›

UBS and Citigroup to Pay Nearly $30 Billion to Tens of Thousands of ARS Investors

Published on: December 22, 2008 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services, Inc., UBS Securities, LLC, and Citigroup have reached finalized settlements with the Securities and Exchange Commission to pay tens of thousands of ARS investors almost $30 billion. The settlements will resolve SEC charges that the companies misled investors about the risks involved with auction rate securities.

The SEC’s complaint accused UBS and Citigroup of misleading customers by telling them ARS were liquid, safe investments and failing to warn them of the growing dangers when the market started to fail. When the ARS market froze in February, the SEC says both firms left tens of thousands of clients holding billions of dollars in illiquid ARS.

These finalized settlements will restore about $22.7 billion in liquidity to UBS clients who invested in ARS and some $7 billion to Citigroup investors. SEC Chairman Christopher Cox says investors will get back “100 cents on the dollar on their ARS investments.” Both firms will buy ARS from affected customers at PAR. Customers that sold their ARS under the par difference will be paid between par and the ARS sale price. This is the largest settlement in SEC history.

UBS and Citigroup are not admitting to or denying the SEC’s allegations by agreeing to settle. Both investment firms, however, have agreed to enjoinment from future violations.

The U.S. District Court for the Southern District of New York still needs to approve the settlements, and additional SEC penalties could still arise for UBS and Citi. The SEC is also waiting to finalize the settlements-in-principle it reached with Merrill Lynch, Bank of America, Wachovia, and RBC Capital Markets.

Related Web Resources:
SEC Finalizes ARS Settlements With Citigroup And UBS, Providing Nearly $30 Billion in Liquidity to Investors, SEC, December 11, 2008
SEC Complaint Against UBS (PDF)

SEC Complaint Against Citigroup (PDF)
Continue Reading ›

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

Published on: November 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183 Deutsche Bank 1-866-926-1437 Citi 1-866-720-4802 JP Morgan 1-866-450-8470 Goldman Sachs 1-888-350-2857 Merrill Lynch 1-888-706-1381 UBS 1-800-253-1974 Morgan Stanley 1-800-566-2273 Wachovia 1-866-283-794
Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
Small firms caught in ARS buyback vise, November 16, 2008 Continue Reading ›

Citigroup Global Markets Ordered to Pay FINRA Fine for Inadequate Supervision

Published on: November 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. says it is fining Citigroup Global Markets Inc. $300,000 for its failure to reasonably supervise the commissions that clients were charged for stock and options trades. Citigroup Global Markets is Citigroup Inc’s brokerage and securities arm.

FINRA says that between April 2002 and January 2006, then-Citigroup representative Juan Carlos Hernandez charged 27 clients unreasonable commissions that substantially exceeded the firm’s calculated rate for appropriate charges. One client was reportedly overcharged about $1.2 million.

Citigroup let Hernandez go in February 2006 and one month later, without admitting to or denying FINRA charges, he consented to the findings made against him and was barred by FINRA.

FINRA contends that Hernandez was able to overcharge clients because Citigroup neglected to properly supervise him. FINRA also found that it wasn’t until October 2007 that Citigroup told its brokers about its calculated commission rates or that they weren’t allowed to charge commissions higher than these rates. In the cases when commissions were greater than Citigroup’s calculated rates, FINRA says the firm lacked the proper procedures and policies for determining whether a commission was inappropriate.

By agreeing to settle, Citigroup is consenting to FINRA’s findings but is not admitting or denying the charges. The firm offered to reimburse customers who were affected.

Judge Approves Citigroup Falcon Fund Investors’ Decision to Withdraw Lawsuit

Published on: July 25, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In New York, a judge has approved the decision by investors of a Citigroup Falcon Fund to drop their lawsuit asking for more data about how the bank plans to liquidate the fund.

On February 22, Citigroup announced it was providing the Falcon Funds a $500 million line of credit and consolidating $10 billion in liabilities and assets.
Citigroup began suspending distributions and redeptions and started closing down the fund in March. The fund’s value dropped by 80% and Citigroup offered to pay investors 45 cents for every dollar.

The investors had been asked to tender shares of Falcon Strategies Two LLC, but they wanted corrections made to the offering memo because misleading and missing information made it impossible for them to value their stakes. U.S. District Judge Sidney Stein, who this week approved the withdrawal of the investors’ class action suit, rejected their motion to push forward the lawsuit about the tender offer. He said the plaintiffs were trying to turn the securities laws’ anti-fraud provisions into provisions of broad disclosure.

The Falcon Funds mainly invested in fixed-income securities and other debt instruments, and they may have been exposed to weaknesses in the mortgage, credit, and bond markets. Citigroup brokers are accused of recommending the funds to investors looking for conservative investments when, in fact, the funds may have been accompanied by a high level of risk.

Related Web Resources:

The Law Firm of Shepherd Smith Edwards & Kantas LTD LLP Investigates Losses in Falcon Hedge Funds, Primenewswire.com, July 2, 2008
Citigroup Alternative Investments LLC : Falcon Strategies Two B LLC Hedge Fund, Stanford Law School Continue Reading ›

Citigroup’s Smith Barney Draws Ire of Investors and Its Own Brokers Over ASTA/MAT and Falcon Funds

Published on: July 2, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup is offering to cover some of the losses of investors involved with certain hedge funds sold by the firm’s Smith Barney brokerage unit. Citigroup and Smith Barney brokers allegedly recommended the funds, ASTA/MAT and Falcon, to investors looking for conservative investments.

Citigroup marketed the hedge funds as being ideal for retirees and other investors seeking safe investments, and Smith Barney raised hundreds of millions of dollars for the funds. The funds were reportedly marketed to investors as low-risk and accompanied by only a minimal probability of loss when, in fact, they came with high levels of risk-information that was kept from investors.

Last year, Citigroup told Smith Barney and Citigroup bankers to market the funds to their best clients. These clients were not informed that the new pitch initiative was an effort to inject new funds into Falcon, which had dropped by over 10%. The fund would be worth 25% of its original value by the end of March 2008.

Citigroup Settles Securities and Exchange Commission Charges Over Accounting Issues Related to Argentine Bonds

Published on: June 25, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Without admitting to our denying any wrongdoing, Citigroup has agreed to settle Securities and Exchange Commission charges that it took part in improper accounting related to specific Argentine bonds. According to the SEC, Citigroup was able to avoid paying another $479 million in pre-tax charges during the 4th quarter of 2001.

Citigroup became affected by Argentina’s economic and political problems because the bank owns Argentine government bonds and over $1 billion in Argentine-related consumer loans. Because of the crisis, the South American country’s government had to default on certain sovereign debt obligations and devalue the country’s currency.

Citibank had to make several accounting decisions, including those involving Argentine government bonds that were not eligible for bond swap, government-sponsored exchanges involving bonds for loans, the sale of Banco Bansud S.A. (a bank subsidiary that Citigroup had acquired), and the result of government actions that lead to the conversion of $1 billion in Citigroup loans to Argentine pesos.