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Citigroup to pay USD285m to settle SEC charges

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The Securities and Exchange Commission (SEC) has charged Citigroup Global Markets Inc (Citigroup), the principal US broker-dealer subsidiary of Citigroup Inc., with misleading investors about a USD1 billion collateralised debt obligation (CDO) called Class V Funding III (Class V III).

At a time when the US housing market was showing signs of distress, Citigroup structured and marketed Class V III and exercised significant influence over the selection of USD500 million of the assets included in the CDO. Citigroup then took a proprietary short position with respect to those USD500 million of assets. That short position would provide profits to Citigroup in the event of a downturn in the United States housing market and gave Citigroup economic interests in the Class V III transaction that were adverse to the interests of investors. Citigroup did not disclose to investors the role that it played in the asset selection process or the short position that it took with respect to the assets that it helped select. Without admitting or denying the SEC’s allegations, Citigroup has consented to settle the Commission’s action.

The SEC today also brought a litigated civil action against Brian Stoker (Stoker) and instituted settled administrative proceedings against Credit Suisse Asset Alternative Capital, LLC (formerly known as Credit Suisse Alternative Capital, Inc.) (CSAC), Credit Suisse Asset Management, LLC (CSAM), and Samir H Bhatt (Bhatt), based on their conduct in the Class V III transaction. Stoker was the Citigroup employee primarily responsible for structuring the Class V III transaction. CSAM is the successor in interest to CSAC, which was the collateral manager for the Class V III transaction, and Bhatt was the portfolio manager at CSAC primarily responsible for the Class V III transaction. Without admitting or denying the Commission’s findings, CSAM, CSAC, and Bhatt have agreed to settle the Commission’s proceedings.


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