Tuesday, October 25, 2011

Citi To Cough Up $285M To Resolve Charges In Alleged Mortgage-Backed, "Dog$#!t" Paper Peddling Racket; Some Call Settlement A Bull$#!t Deal

The New York Post reports:

  • Citigroup really stepped in it this time. The bank was forced to shell out $285 million in a settlement linked to the sale of 2007 vintage mortgage bonds one unnamed Citi trader described as dogsh-t,” according to a lawsuit filed by the Securities and Exchange Commission.

  • The settlement follows allegations by the SEC charging that Citi tailor-made a $1 billion pool of toxic mortgages, handpicked to blow up after the bank unloaded it to an unsuspecting client.

  • Citi’s hefty penalty marks the biggest since Goldman Sachs shelled out a whopping $550 million a year and a half ago to settle allegations that it mislead investors in originating toxic mortgage securities.

  • Investors were not informed that Citigroup had decided to bet against them and had helped choose the assets that would determine who won or lost,” Robert Khuzami, enforcement director at the SEC, said in a statement.

  • A second bank, Credit Suisse, agreed to pay $2.5 million for its role in arranging the structured residential mortgage offering.

  • According to the SEC, Citi pocketed $160 million from arranging the debt. The CDO debt, known as Class V Funding 111, which was sold to 15 investors, lost almost all of its value within months.

  • At one point, the SEC suit states, an unnamed Citi trader referred to the CDO offering asdogsh-t” and “possibly the best short ever.”(1)

  • Citi has settled the charges without admitting or denying any wrongdoing. The SEC also sued former Citi banker Brian Stoker(2) while another former Credit Suisse banker, Samir Bhatt, agreed to pay $50,000 and serve a six-month suspension from working as an investment advisor.(3)

Editor's Note: Apparently, there is more than meets the eye in this settlement as it is viewed with some disdain in some quarters.(4)

Source: Citi fined $285M for selling dog$#!t paper.

See also, Securities and Exchange Commission press release: Citigroup to Pay $285 Million to Settle SEC Charges for Misleading Investors About CDO Tied to Housing Market (Former Citigroup Employee Separately Charged for His Role in Structuring Transaction).

(1) See U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc. (paragraph 58):

  • [O]ne experienced CDO trader characterized the portfolio as "a collection of dogsh!t" and "possibly the best short EVER!" An experienced CDO collateral manager commented, "the portfolio is horrible."

(2) See SEC Complaint Against Brian H. Stoker.

(3) Order in the Matter of Credit Suisse Alternative Capital, Credit Suisse Asset Management and Samir H. Bhatt.

(4) See:

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