10/19/2011 03:59:00 PM EST
Citigroup to Pay $285M to Settle SEC Claims Regarding CDO
WASHINGTON, D.C. - (Mealey's) Citigroup Global Markets
Inc. has agreed to pay $285 million to settle claims that it misled investors
about a collateralized debt obligation (CDO) "that was tied to the U.S. housing
market in which Citigroup bet against investors as the housing market showed
signs of distress," according to a press release issued by the Securities and
Exchange Commission October 19.
According to the press release, Citigroup structured and
marketed the CDO, Class V Funding III, "and exercised significant influence
over the selection of $500 million of the assets included in the CDO
"Citigroup then took a proprietary short position against
those mortgage-related assets from which it would profit if the assets declined
in value" and failed to disclose "its role in the asset selection process or
that it took a short position against the assets it helped select," the SEC
said in the release.
The SEC also filed a separate complaint against Citigroup
employee Brian Stoker, whom the SEC alleged to have been "primarily responsible
for structuring the CDO transaction"; Credit Suisse Alternative Capital (CSAC),
which "served as the collateral manager for the CDO transaction"; its successor
in interest, Credit Suisse Asset Management (CSAM); and Credit Suisse portfolio
manager Samir H. Bhatt, who was "primarily responsible for the transaction."
As part of the settlement, which is subject to court
approval, Citigroup does not admit or deny the SEC's allegations. The
settlement requires Citigroup to pay $160 million in disgorgement plus $30
million in prejudgment interest and a $95 million penalty and requires remedial
action by Citigroup "in its review and approval of offerings of certain
With regard to the related administrative action against
CSAC, CSAM and Bhatt, the SEC found that "as a result of the roles that they
played in the asset selection process and the preparation of the pitch book and
the offering circular for the Class V III transaction," they violated Section
206(2) of the Investment Advisers Act and Section 17(a)(2) of the Securities
Act of 1933.
The SEC also charged Bhatt with violations of Section
17(a)(2) of the Securities Act and suspended him from "association with any
investment adviser for a period of six months."
CSAC, CSAM and Bhatt consented to cease and desist from
any violations of Section 206(2) and Section 17(a)(2).
The press release is available online at www.sec.gov/news/press/2011/2011-214.htm.
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