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Securities Law

Citigroup to Pay $285M to Settle SEC Allegations It Bet Against Its Own Clients on Mortgage CDO

Posted Oct 20, 2011 7:21 AM CDT
By Debra Cassens Weiss

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Citigroup has agreed to pay $285 million to settle allegations that it sold mortgage-backed securities to clients while betting against the investments through short sales.

The payment settles a suit filed Wednesday by the Securities and Exchange Commission, report the Los Angeles Times, the New York Times and a press release. Many of the mortgage investments in the collateralized debt obligation were handpicked by Citigroup, according to the SEC complaint.

Under the settlement, Citigroup will refund its profits to investors and will pay a $95 million fine, “a relative pittance” for the profitable bank, according to the New York Times. The newspaper says U.S. District Judge Jed Rakoff could be reluctant to approve the settlement, given his hard-line stance in previous cases.

Two other banks—Goldman Sachs and JPMorgan Chase & Company—have settled similar cases.

In a statement cited by the New York Times, Citigroup noted that it was accused of negligent rather than intentional or reckless conduct. “We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” the statement said.

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