Citigroup to be charged by NY Attorney General facing SEC probe

August 5, 2008 by · Leave a Comment
Filed under: Industry News 

New York Attorney General Andrew Cuomo plans to imminently charge Citigroup, accusing it of fraudulently marketing and selling auction-rate securities, and destroying documents that had been subpoenaed.

In a letter Friday to the bank, David Markowitz, chief of the state’s investor protection bureau, accused the largest U.S. bank by assets of having “repeatedly and persistently committed fraud” by falsely representing to customers that auction-rate debt was safe, liquid and the equivalent of cash.

He also said Citigroup destroyed audiotapes of phone calls on auction-rate debt that were subject to an April 14 subpoena. The bank learned in mid-June about the destruction, but failed to tell Cuomo’s office until June 30, the letter said.

Citi said in an e-mailed statement that recycling tapes is generally its practice. It inadvertently recycled a tape subject to the subpoena, but as soon as it learned it had, it stopped recycling tapes. “We reported this oversight to the regulators, and we have fully cooperated with them in all aspects of this investigation,” the statement said.

Any settlement of the five-month investigation would require New York-based Citigroup to buy back the affected debt at face value, pay damages to investors, and incur a “significant penalty” for its misconduct, the letter said.

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