Citigroup May Pay $100 Million to Settle Auction-Rate Claims

August 6, 2008 by · Leave a Comment
Filed under: Industry News 

In an update, it looks like Citigroup will be paying a fine to settle the claims that fraudulently sold the bonds to investors. Here is the release from


The states victimized by the collapse of the auction-rate securities market are negotiating with Citigroup Inc., the biggest underwriter of such debt, to pay as much as $100 million to settle claims it fraudulently sold the bonds to investors, a person familiar with the case said.

Citigroup may also buy back more than $5 billion in auction-rate securities from investors stuck with the debt since the $330 billion market collapsed six months ago, the person said. New York State Attorney General Andrew Cuomo told the bank on Aug. 1 he was preparing to sue over the sale of the bonds. A multi state task force has also been investigating New York-based Citigroup, along with other Wall Street banks.

The settlement would be another blow to Citigroup Chief Executive Officer Vikram Pandit, 51, who recorded a $2.5 billion loss in the second quarter because of $12 billion of writedowns and increased bad-loan reserves. The settlement may establish a precedent for an agreement between regulators and UBS AG, which has also been targeted by regulators in the matter.

Auction-rate securities are typically bonds whose interest rates are reset by periodic bidding. Cuomo said Citigroup failed to tell customers that the auction-rate market survived between August 2007 and February 2008 only because of bidding from the bank. Customer holdings have been frozen since Feb. 13.

Source: Bloomberg

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