New York - Citigroup reached a multibillion-dollar
settlement with regulators and governments on Thursday on claims it
improperly urged customers to buy a type of bond that fell apart in
conjunction with the subprime mortgage crisis.
Citigroup will buy back from customers 7.5 billion dollars worth
of auction-rate securities - a type of bond without a set interest
rate for which rates are instead set at periodic auctions.
The Securities and Exchange Commission, New York's Attorney
General Andrew Cuomo and others alleged Citigroup pushed the
securities to customers as providing easy access to their invested
cash, without much risk.
The system functioned as long as there were customers willing to
buy the bonds. But the market for the bonds evaporated in February
and the auctions failed after bond insurers that guaranteed the
investments got caught up in the subprime mortgage crisis. Investors
were left unable to sell the securities.
The settlement could set a precedent for other investment firms
that sold such auction-rate securities, worth an estimated 200
billion dollars.
'Today's settlement sends a resounding message to the entire
auction-rate securities industry: This type of deceptive behavior
will not be tolerated and we will actively seek justice on behalf of
investors,' Cuomo said in a statement. 'Our goal is simple: to get
investors back their money, and thats exactly what this deal does.'
In addition to buying back 7.5 billion dollars in investments from
about 40,000 individual investors, the firm will pay a 50-million-
dollar fine to New York state and a 50-million-dollar fine to the
North American Securities Administrators Association.
It must also develop a plan to liquidate 12 billion dollars more
of the same securities sold to institutional investors, like
retirement plans.
Citigroup said in a statement that it has worked with investors to
get cash for those who hold auction-rate securities they cannot sell.
'We are pleased to reach this agreement in principle with the New
York attorney general, the Securities and Exchange Commission, and
other state regulatory agencies,' the company said. 'We remain
committed to continuing our work on initiatives that will secure the
best and fastest route to providing liquidity to our clients.'
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