On $3B Fraud, Citigroup Whacks Citi for $180M

     
     WASHINGTON (CN) – Citigroup will pay $180 million to settle charges of defrauding investors in hedge funds that collapsed in the financial crisis, the Securities and Exchange Commission said on Monday.
     The deal will prevent administrative proceedings over “material misstatements and omissions” that Citigroup allegedly made over the sale of securities in two now-defunct hedge funds – the ASTA / MAT funds and the Falcon Strategies funds – in 2002 and 2007.
     The Citigroup affiliates pushed these funds by claiming they were safe, low-risk and suitable to traditional bond investors. This was false and misleading, and after taking nearly $3 billion from 4,000 investors, Citigroup took another $110 million from them even as the funds were collapsing, the SEC said.
     Investors lost “billions” when the funds collapsed in 2008, according to the SEC.
     Regulators brought the case inside the commission’s so-called “in-house” court system established under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
     Citigroup did not admit or deny the allegations in settling the case. Its subsidiaries – Citigroup Global Markets and Citigroup Alternative Investments – will cover the posts of paying the $180 million to the investors, the SEC said.
     The SEC’s settlement with Citigroup for far under the alleged amount in damages the bank caused echoes a federal court case four years ago.
     In 2011, U.S. District Judge Jed Rakoff attempted to scuttle a deal between the SEC and Citigroup over $600 million mortgage fraud claims for what he called “pocket change.”
     Attempting to scuttle the deal, Rakoff blasted what he the SEC’s “long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into consent judgments without admitting or denying the underlying allegations.”
     The Second Circuit overruled Rakoff’s objections, and said that federal judges do not have the power to decide whether a settlement is “adequate.”
     The SEC did not respond to request for comment by press time.Citigroup said in a statement it is “pleased to have resolved this matter.”

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