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New York to charge Citigroup for fraud in sales of securities
New York Attorney General Andrew Cuomo plans to imminently charge Citigroup Inc, accusing it of fraudulently marketing and selling auction-rate securities, and destroying documents that had been subpoenaed.
- Reuters
- Published: 20:00 August 2, 2008
New York: New York Attorney General Andrew Cuomo plans to imminently charge Citigroup Inc, 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 US 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.
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.
Cuomo's office plans to charge Citigroup under the state's Martin Act, which allows civil or criminal charges.
Citigroup did not immediately return several requests for comment.
Cuomo sued UBS AG on July 24 over auction-rate securities, accusing the Swiss bank of a "multi-billion dollar fraud" in steering customers into the debt.
Auction-rate securities have rates that set periodically. The $330 billion market was once considered safe, but part of it remains frozen after a February meltdown in which brokerages abandoned their role as buyers of last resort.
Regulators nationwide also are examining auction-rate sales practices at other financial services companies, including Bank of America Corp, Merrill Lynch & Co Inc and Wachovia Corp .
Earlier on Friday, Citigroup said in its quarterly report that the US Securities and Exchange Commission (SEC) has opened a formal probe, which gives it subpoena power, into the sale of auction-rate securities.
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