What the SEC Won’t Tell the Court About its Sweetheart Deal with Citigroup

Nov 9 2011 - 9:16am

A pathetic $95 MILLION fine to stop SEC investigations into more than $145 BILLION in Citigroup’s toxic CDO deals, most of which ended up worthless, helped cause the financial crisis and required the massive taxpayer bailout of Citigroup ($50+ billion in capital injections and $300+ billion in guarantees of its toxic assets).

A $95 million fine. That’s it.  That’s the only penalty Citigroup is paying for any and all damage relating to all of its many years of placing more than $145 billion in CDOs.  Heck of a deal:  $95 million and the SEC stops investigating $145 billion in deals.  $95 million isn’t even a rounding error to Citigroup, which has almost $2 TRILLION in assets and revenues of more than $20 BILLION in the last 3 months.

The SEC says Citigroup is also paying $160 in disgorgement of profits it received on the one deal being settled, but Citigroup took in more than $600 million on the deal and maybe as much as $700 million.  Yet, it only has to pay back $160 million – this screams “sweetheart deal!”

While an odd word, “disgorgement” is critically important because it prevents law-breakers from profiting from their fraud.  That is why disgorgement has to be full and complete.  Simply put, crime should not pay.  To not insist on full and compete disgorgement of all ill-gotten gains from a fraud would incentivize and reward fraud, which appears to be happening here. 

$95 million penalty to stop investigating $145 billion and $160 million payback for receiving more than $600 million shouts to Wall Street that “crime pays”!

And, that’s not all.  The SEC is doing this after taking testimony from only several current and former employees of Citigroup.  That’s it.  This one deal involved dozens of Citigroup employees and officers, yet the SEC only took testimony from a few of them.  How can that be a thorough investigation?  

Very little of this is being brought to the attention of the court.  The SEC is telling the court to rubber stamp the settlement and Citigroup, unsurprisingly, is saying, “Yes, apply rubber stamp quickly!”

Better Markets asked the court to intervene in this case to bring these facts and issues to the court’s attention.  The SEC opposed Better Markets and the court has refused to let us bring these facts – and many more – to the court’s attention.  But, you can read what we wanted to tell the court about the SEC’s and Citigroup’s conduct and why the court should reject this sweetheart deal for a wealthy, powerful, well-connected Wall Street bank.  (Read the brief Better Markets sought to file below.)

Our legal system is based on the adversary system, believing that opposing parties are the best way to bring all the key issues to a court’s attention and that, therefore, justice will be served.  That system breaks down, however, when both sides are arguing for the same thing like this settlement.  The parties to a settlement have no interest in bringing anything to the court’s attention that might cause the court to reject it.  That’s what’s happening here and that’s why Better Markets asked to and should have been allowed to intervene.  These parties here are sweeping a bunch of dirt under the rug, not telling the court or the American people about it.  That’s what we tried to prevent and that’s what the SEC and the Court stopped.