Thursday, October 20, 2011

Citigroup to Pay Millions to Close Fraud Complaint.

"As the housing market began its collapse, Wall Street firms and sophisticated investors searched for ways to profit. Some of them found an easy method: Stuff a portfolio with risky mortgage-related investments, sell it to unsuspecting customers and bet against it." - Article Below.

I brought up this case because what Citibank was accused of doing is very similar to what was done when the Pinnacle Notes and Lehman Minibonds were sold to Singaporeans. The products developed by American investment banks were linked to the US mortgage markets become worthless during the financial crisis. While the investment banks covered themselves legally in contracts pertaining to  the sale of these products, the SEC went after them for fraud - if they knew these products will blow up and sold them anyway, no contract or legal document is going to stop the SEC from investigating potential fraud. 

The Singapore govt took a different approach.

"But many went in with their eyes open. They're not old or uneducated. Now they are saying 'please include me too'. Well...we've got to go according to what's fair. " - MM Lee 8 Nov 2008.



While the Singapore govt did not go after investment banks for what they did in Singapore, a group of Pinnacle Notes investors have sued Morgan Stanley[Link]. It is important not to let these investment banks get away because it will send a strong signal that you cannot just come to Singapore and defraud Singaporeans by hiding behind a contract. 


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Citigroup to Pay Millions to Close Fraud Complaint[Link]


By EDWARD WYATT

Published: October 19, 2011

WASHINGTON — As the housing market began its collapse, Wall Street firms and sophisticated investors searched for ways to profit. Some of them found an easy method: Stuff a portfolio with risky mortgage-related investments, sell it to unsuspecting customers and bet against it.
Robert Khuzami of the S.E.C. said the bank should have been more forthcoming.

Citigroup on Wednesday agreed to pay $285 million to settle a civil complaint by the Securities and Exchange Commission that it had defrauded investors who bought just such a deal. The transaction involved a $1 billion portfolio of mortgage-related investments, many of which were handpicked for the portfolio by Citigroup without telling investors of its role or that it had made bets that the investments would fall in value.
In the four years since the housing market began its steady descent, securities regulators have settled only two cases related to the financial crisis for a larger sum of money. This is also the third case brought by the S.E.C. accusing a major Wall Street institution of misleading customers about who was putting together a security and about their motive. Goldman Sachs and JPMorgan Chase & Company both settled similar cases last year.



The settlement will refund investors with interest and include a $95 million fine — a relative pittance for a giant like Citigroup. On Monday, the company reported that in the third quarter alone it earned profits of $3.8 billion on revenue of $20.8 billion. The settlement may also have trouble getting approval from Jed S. Rakoff, the federal district judge in New York who must ultimately sign off on the fine and who has taken a hard line on S.E.C. settlements.



Neither the S.E.C. nor the Justice Department would say whether the case raised questions about whether Citigroup had been involved in any criminal wrongdoing. But the case highlights a growing frustration felt by foreclosed homeowners, investors and Wall Street protesters alike that few, if any, senior banking executives have faced criminal charges for losses growing out of the financial crisis.



Citigroup has settled one case stemming from the crisis. Last year, it agreed to pay $75 million to settle federal claims that it hid from investors vast holdings of subprime mortgage investments that were losing value during the crisis and that ultimately prompted the federal government to rescue the bank.



“The securities laws demand that investors receive more care and candor than Citigroup provided” to investors in the security, said Robert Khuzami, director of the S.E.C.’s enforcement division, referring to Wednesday’s action. “Investors were not informed that Citigroup had decided to bet against them and had helped to choose the assets that would determine who won or lost.”



The complex amalgamation of investments known as Class V Funding III produced $126 million in profits for Citigroup’s brokerage subsidiary, and another $34 million in fees for putting it together. All of that, including interest and the $95 million fine, will now be going back to the investors; the government will not receive anything.



In a statement, Citigroup noted that the S.E.C. did not charge it with “intentional or reckless misconduct.” Rather, it settled charges that its actions were negligent and misleading to investors. Despite its profits on the current deal, over all Citigroup lost tens of billions of dollars on its holdings of mortgage-related investments.



“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 company said in a statement. “Since the crisis, we have bolstered our financial strength, overhauled the risk management function, significantly reduced risk on the balance sheet and returned to the basics of banking.”



The S.E.C. on Wednesday also brought a case against Credit Suisse, which played a smaller role in the transaction, and against one individual at each company. But those individuals were midlevel employees in each company’s investment and trading departments; no senior executives at either company were charged

33 comments:

Anonymous said...

Singaporeans deserve what they are getting from LKY. I hope now they feel screwed twice over..why..because

"Many (60%) went in with their eyes open. They're not old or uneducated "

They voted the PAP in again, so do not grumble, you deserve it.

Amused said...

Singapore does not operate like other developed countries. It has been voted the best place to do business year after year for a reason. There is no employment law against discrimination (age, sex, race, or religion), no minimum wage, no consumer protection, and no antitrust regulations. It is no surprise that it sided with the banks on Minibonds.

Anonymous said...

Hahaha

60% is a strong argument and also a good case to counter whatever that Lucky Tan brought up.

Because, whenever Lucky Tan said Singapore, or rather the PAP, this no good, that no good, at least 60% will stood up for the PAP and say it is OK (vote PAP).

No wonder some commentators (at least 2) to his blog can even go on and on with 60%.

Like some sort of Obsessive Compulsive Disorder (OCD).

Just like Lucky has some sort of OCD for saying this no good, that no good.

Anonymous said...

Hahaha

Yes, may the 60% truly deserve what they voted for, the entire package to come and nothing more.

Hack, let more Sinkis join the 60% and make it 100%. Good luck to all!

Let's be Fair said...

To be fair, I think you have to look at the timing of the sale of the notes. If the notes were sold pre-June 2007, most people (including bankers) were not aware of the problems in the US housing markets yet.

Bank salespeople are essentially just that. They are not super-smart like some hedge fund managers. These salespeople are unable to outperform the market, some of them are just plain naive.

Investors should be careful where they invest and not put too much trust in the advice of others. This is the best way to protect your wealth.

Lastly, I think there is a bubble in the Singapore property market right now (based on measure of average property price against average annual household income). I hope people are prudent in their purchases, otherwise 3 years down the road an article will appear on this blog complaining about how property agents fraudalently sold expensive units to investors even though they knew property prices may go down.

Anonymous said...

"Lastly, I think there is a bubble in the Singapore property market right now...."
Let's be Fair said... 20/10/11 14:35

Bubble?? Do you know there are currently 183,000 millionaires here? And it is expected to hit 408,000 in five years.

And the average wealth of each Singaporean is S$359,600!!!!

You may not have high income or much wealth (that's why you think there is a property bubble) but many others have.

Anonymous said...

Old dog LKY sent a strong signal to the rest of the world -- we are only interested in GDP growth and we're OK with you scammers coming here to set up office to defraud Singaporeans.

Anonymous said...

Mr Tan,

We can never tell what is the future holds us, only death and tax. And we can throw all our text books (economy, finance, etc) to the drain coz it does not relevant anymore considering the economic climate in recent decades. That is why, we need to prepare ourselves, read, survey, no emotional sentiment before buying bonds and whats not. Bankers have their responsibilities too but all in all we are partially responsible if things not going UP!

Cheers!

Anonymous said...

There is no bubble in Singapore's property market. Also, there is no bubble in its car market. Look at the recent COE and increasing COE prices in the future due to congestion caused by wrong prediction on car quotas for past years, just like the Police Force found error in recording crime cases. If recording crime cases is difficult, it is expected more difficult to predict future COE prices. My friend just told me he can buy 4 similar cars in Australia or US for the small car COE and 5 similar ones for the big car COE. Unless you have a good reason to stay on this red dot, there are many greener place to go, my friend said.

Anonymous said...

PM Lee just said he wants to achieve these:
a. An inclusive society that leaves no one behind
b. A vibrant economy that improves all lives
c. A constructive politics that puts Singapore first

He has obviously failed to achieve any of the above. Can he achieve the above in the next 4-5 years? I doubt very much. So long as the ruling party and hence the current government does not change radically, cronyism, nepotism and dynasty-style governance will continue. It will fail to achieve these goals. A waste of life!

Anonymous said...

Do you think with all the redrawing of the electoral boundaries, making money from the HDB, witholding your cpf in your old age and not abolishing ISA so that they could remain in power...do you seriously think the motive of the incumbent government that we have right now is one which wants to serve the people of Singapore?

Anonymous said...

"PM Lee just said he wants to achieve these:
a. An inclusive society that leaves no one behind
b. A vibrant economy that improves all lives
c. A constructive politics that puts Singapore first

He has obviously failed to achieve any of the above."
Anon 20/10/11 21:05

That's what you think and does it matter what you think?

What matters is 60% voters think that PAP, although not perfect,(but who's perfect???), still deserve their vote.

Anonymous said...

“Since the crisis, we have bolstered our financial strength, overhauled the risk management function, significantly reduced risk on the balance sheet and returned to the basics of banking.”

I noticed that Citibank did not apologize for defrauding its customers. Neither did it undertake to not attempt to defraud its customers again.

Anonymous said...

Singaporeans are already screwed. The investments by GIC and Temsasek are as good as lost. Singaporeans just don't know it yet.

Anonymous said...

Rehashing empty promises in every Parliament Meeting for the last two decades.
Whatever for when no promise ever materialized?

patriot

Anonymous said...

Bankers, property developers and government are the biggest conmen of this era.

Anonymous said...

Double quick, double quick, go to buy any HDB flat or condominium.

The price of a typical 5 room HDB flat is to hit $3 million in 2016.
The price of an average condominium is to hit $19 million in 2016.

Go to make quick and assured huge profit!

Anonymous said...

A Freedom of Information Act that allows all Singaporeans to access official information that public bodies had not made available previously could be painful to a few when past deeds and myths are suddenly open to fair and just public scrutiny. How can that be allowed? Use your brain!

Anonymous said...

Most Singaporeans know that we cannot depend on our government to take care of our interests. Just look at how poor Singaporeans were cheated of their money from the the sale of Minibonds by our banks and the countless fraudulant S-Chips companies invited to be listed by SGX. The manner MAS and SGX dealt with the entire matters left this message ingrained in our mind: As long as the government make money, you people die is your business. This is the kind of government 60% of Singaporeans have voted for.

Anonymous said...

'Freedom of Information Act ... How can that be allowed? Use your brains! '
Anon 21/10/11 13:12

U should use YOUR brains.Of course that wil not be allowed now. WP MPs use their brains & raise issues that make people think about policies n make the papies think twice b4 implementing any policythat suits them. In the future, some of their propsals will be implemented but the papies will try to take credit for it.PAP MPs just utter what they think their masters want to hear.In the current parliament sitting , the papies are not sneering & mocking the opposition so quickly as b4

Cleveland Industrial real estate said...

yup me to use to get that hacking concepts

Let's be Fair said...

@ Anonymous...20/10/11 14:54

"Bubble?? Do you know there are currently 183,000 millionaires here? And it is expected to hit 408,000 in five years.

And the average wealth of each Singaporean is S$359,600!!!!"


Hmmm... let's do some simple maths. 408K millionaires from 183K millionaires in 5 years. Do you know that is a 17.4% growth in millionaires a year?! That is even better than our 2010 miracle GDP growth of 14%. Anyone who believes this must have water in their brain.

Average wealth of Singaporeans is S$359K? I ask you how much is their average mortgage? Even if we use a conservative amount of S$200K, that leaves net worth of S$150K+. Is that a lot? I do not think so.

Anonymous said...

Millionaire means net worth of $1m million in liquid assets after minus all debts and mortgages. And property is not counted, even if fully paid up because it is not a liquid asset.

Hence even if you own dozens of palaces in Timbuktu also not counted. Can you sell and how much $$cash can you get?

And the $ means US$. What's the point of being rupiah or yen or worse Zimbabwe $?

Anonymous said...

Go to buy properties now and you will be the next multi-millionaires in a few years time.

Never mind the mortgage, the interest rate will remain near 0% or at very low rate for many decades.

You are in peace that you will always definitely have ready buyers who are prepare to buy your properties at many multiple times the price you paid for.

You can fully retire with the multi-million dollars gain from buying and selling properties.

Using a tiny fraction of the million dollars gain, you can buy multiple BMWs. Changing a BMW is like changing any T-shirt. You can just throw away the BMW like you throw away a used piece of clothing.

Anonymous said...

With the level of kiasuism, casinos, elitism and greed in our society, will we turn out the same way as a society?

http://www.youtube.com/watch?v=mzvGxDbM5Wk&feature=related

Moral leadership is more important than putting rice on the table today.

Anonymous said...

"Anonymous said...

Bubble?? Do you know there are currently 183,000 millionaires here? And it is expected to hit 408,000 in five years.

And the average wealth of each Singaporean is S$359,600!!!!

You may not have high income or much wealth (that's why you think there is a property bubble) but many others have.

20/10/11 14:54"

Hahaha... this is some funny shit. What drugs is this guy taking to get so high? If average Singaporeans having so much wealth, there would be no old uncles and aunties cleaning toilets or tables...

Anonymous said...

It's all about education really.

Our education system is based on competition. Look at Finland's. If we keep teaching kids to compete against one another rather than cooperate with one another, just like FInland where they're building their own companies and products such as Nokia, we're in trouble.

We need a change of leaders as PAP is bringing us on a road of perpetual non-innovation. Our young are told to be do what they love but we're not producing anything to show it in real terms or products. The problem is the leadership in this country is bringing us down.

We need to reform what we do. And get out from this PAP's groupthink, so that we can rebuild ourselves as a nation and we need to do that for survival sake.

Anonymous said...

.....so quickly as b4
anon 21/10/11 16:04


By now u should know why u didn't get it, moron!

Amused said...

Off topic -

Anon 22/10/11 03:55,

I agree with you wholeheartedly. All Singapore has is its people. Just like Google/Facebook/Apple, the people are its biggest asset. Unfortunately the stifling control of free thinking has done great damage to the culture and the young. All of these great companies mentioned above have done something new and different. Steve Jobs is really a rebel by heart. You will never be successful as a follower.

Anonymous said...

MAS approved toxic product sold by Morgal Stanley.By allowing Temasek name and DBS to be use as the reference entitiesis are already a solid proof of their involvement. They hv simply no sympathty to the losses suffered by so many when Pinnacles Notes went bust. Therefore from these days many hv lost trust in the gahment.

Anonymous said...

The Singapore Government has no intention of sending any signals to these investment banks no to defraud the common folks. On the contrary, these investment banks are encouraged to come here and peddle their snake oils provided the government also get a piece of the ill gotten gain.

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