Citi Agrees To Pay $285 Million

Citigroup Inc. (NYSE:C) on Wednesday agreed to pay around $285 million as a fine for the financial institution misleading investors in a derivatives deal worth $1 billion that was tied to the creation of the housing bubble in United States.

Charges were filed by the Securities and Exchange Commission against the bank for failing to inform investors over the tell tale signs of distress shown by the housing market. A charge was also fined by the Commission against a Citigroup employee who was alleged to be responsible for pushing the derivatives ahead and also for settling the charges against Credit Suisse’s asset management unit.

The fine of $285 million will be returned to the investors who lost money as part of a collateralized debt obligations, which is also known as Class V Funding III.  According to the commission’s findings, Citigroup had a significant influence over the selection of assets worth $500 million in the derivative deals portfolio.

Apart from pushing the uncertain derivatives deal, Citibank also went ahead and betted for the failure of the deal by taking a short position against the mortgage backed assets. This helped Citigroup benefit from the failure of the investments of its own clients. The bank also failed to let its investors know that it was it was betting against the same assets that it was selling to its investors.

The employee specifically charged by the commission was Brian Stoker and Samir H. Bhatt. Stoker was the main individual responsible for arranging the deal and Bhatt is alleged to be responsible for the transactions. The C.D.O transaction had Credit Suisse as the collateral manager.

According to the director of the Commission undertaking the investigation, Robert Khuzami said that according to the securities laws investors gain more care and candor than that provided by Citigroup. The short position taken by Citigroup helped it gain $126 million and around $34 million as marketing and transaction fees. The $285 million fine includes a $30 million in prejudgment interest, a $160 million disgorgement fees and also a $95 million penalty. Everything will be returned to the investors who lost money in the bad assets.

Citigroup has agreed to the settlement without accepting any wrong doing. Credit Suisse was fined $4 million for its involvement in the toxic mortgage assets case. Bhatt will face a six month suspension, according to the settlement terms. The settlement still requires court approval.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.