WASHINGTON – Citigroup has agreed to pay $285 million to settle civil fraud charges that it misled buyers of complex mortgage investments just the housing market was starting to collapse.

The Securities and Exchange Commission said Wednesday that the big Wall Street bank bet against the investors in 2007 and made $160 million in fees and profits. Investors lost millions.

The payment includes the fees and profit Citigroup earned, $30 million in interest and a $95 million penalty. The money will be returned to investors in the deal, the SEC said.

Citigroup neither admitted nor denied the SEC’s allegations in the settlement.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” Citigroup said in a statement.

The penalty is the biggest targeting Wall Street firms that mislead investors ahead of the 2008 financial crisis since Goldman Sachs & Co. paid $550 million to settle similar charges last year. JPMorgan Chase & Co. also settled similar charges in June and paid $153.6 million.

All of the cases have involved so-called collateralized debt obligations. Those are securities backed by pools of other assets.

In a civil lawsuit filed Wednesday, the SEC said Citigroup traders discussed in late 2006 the possibility of buying financial instruments to essentially bet on the failure of the mortgage assets being put together in the deal.

Rating agencies downgraded most of the investments that Citigroup had bundled together just as many homeowners stopped paying their mortgages in late 2007. That pushed the investment into default and cost its buyers — hedge funds and investment managers — several hundred million dollars in losses.

Among the biggest losers were Ambac, a bond insurer, and BNP Paribas, a European bank. Ambac had sold Citigroup protection against losses on the investment, allowing Citigroup to bet against it.

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AP Business Writer Pallavi Gogoi contributed to this report.

WASHINGTON – Citigroup has agreed to pay $285 million to settle civil fraud charges that it misled buyers of complex mortgage investments just the housing market was starting to collapse.

The Securities and Exchange Commission said Wednesday that the big Wall Street bank bet against the investors in 2007 and made $160 million in fees and profits. Investors lost millions.

The payment includes the fees and profit Citigroup earned, $30 million in interest and a $95 million penalty. The money will be returned to investors in the deal, the SEC said.

Citigroup neither admitted nor denied the SEC’s allegations in the settlement.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” Citigroup said in a statement.

The penalty is the biggest targeting Wall Street firms that mislead investors ahead of the 2008 financial crisis since Goldman Sachs & Co. paid $550 million to settle similar charges last year. JPMorgan Chase & Co. also settled similar charges in June and paid $153.6 million.

All of the cases have involved so-called collateralized debt obligations. Those are securities backed by pools of other assets.

In a civil lawsuit filed Wednesday, the SEC said Citigroup traders discussed in late 2006 the possibility of buying financial instruments to essentially bet on the failure of the mortgage assets being put together in the deal.

Rating agencies downgraded most of the investments that Citigroup had bundled together just as many homeowners stopped paying their mortgages in late 2007. That pushed the investment into default and cost its buyers — hedge funds and investment managers — several hundred million dollars in losses.

Among the biggest losers were Ambac, a bond insurer, and BNP Paribas, a European bank. Ambac had sold Citigroup protection against losses on the investment, allowing Citigroup to bet against it.

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AP Business Writer Pallavi Gogoi contributed to this report.

WASHINGTON – The internal watchdog of the Securities and Exchange Commission is investigating an allegation that the agency’s enforcement chief gave a break to two Citigroup executives when the bank settled charges of misleading investors.

Inspector General David Kotz confirmed Tuesday that his office recently began a review at the request of Sen. Charles Grassley, R-Iowa. Grassley passed the anonymous written allegation to Kotz. It said that the SEC enforcement director, Robert Khuzami, directed his staff to drop planned civil fraud charges against the executives after having a “secret conversation” with an attorney representing Citigroup who is “a good friend” of Khuzami.

An SEC spokesman says the Citigroup settlement followed a careful review of evidence and held the executives accountable.

Kotz’s review was reported earlier Tuesday by Bloomberg News.

Citigroup agreed in July to pay $75 million to settle the SEC’s charges it misled investors on about $50 billion in potential losses from securities linked to subprime mortgages. The agency also settled charges with former Chief Financial Officer Gary Crittenden, who agreed to pay a $100,000 civil penalty, and the former head of investor relations, Arthur Tildesley Jr., who agreed to pay $80,000.

The charges against Crittenden and Tildesley involved negligence rather than fraud. They neither admitted nor denied the allegations under terms of the settlement.

SEC spokesman John Nester said Tuesday the settlement “appropriately held the company and individuals accountable. It was the product of a thorough investigation and a careful evaluation of the evidence and the applicable law.”

“We stand ready to assist and cooperate fully” with the inspector general’s review, Nester said in a statement.

Jon Diat, a spokesman for New York-based Citigroup, declined to comment.

Grassley said that if the allegation is true, it is “exactly” the sort of conduct that he and another senior members of the Senate Judiciary Committee urged the SEC to stop in their report on the agency’s handling of an insider trading case.

“It isn’t appropriate for senior SEC officials to secretly meet with lawyers for the other side and then make major decisions about the case without the knowledge or involvement of the career government attorneys doing the day-to-day work,” Grassley said. “The SEC supposedly implemented a policy to stop this.”

A federal judge initially declined in August to approve the settlement, asking SEC attorneys why the bank’s shareholders should be punished for the alleged misdeeds of Citigroup executives. She approved it in October after Citigroup pledged to maintain new policies it adopted to avoid similar violations in the future.

The anonymous letter also was sent to Rep. Darrell Issa, R-Calif., the incoming chairman of the House Oversight and Government Reform Committee.

(Reuters) – The U.S. securities regulator has probed certain Citigroup Inc debt funds to assess whether the bank made adequate disclosure to investors about the funds’ risk levels, the Wall Street Journal said, citing people familiar with the matter.

The Securities and Exchange Commission (SEC) had also subpoenaed the bank’s former brokers for testimony, the Journal said.

Citigroup’s debt funds, which are under the SEC’s scanner, had used borrowed money to invest in municipal bonds and mortgage debt, the Journal said.

After the mortgage market imploded during the credit crisis, the funds’ value fell about 77 percent to reach a low in March 2008, the paper said.

Following internal discussions, Citigroup had offered share buybacks that reduced investor losses to about 61 percent, according to the Journal.

Three California-based brokers, who worked for the then Citigroup unit Smith Barney, concluded the bank did not adequately disclose the funds’ risks and had also mismanaged them, the newspaper said, citing people familiar with the regulatory probe.

The brokers, who resigned in 2008 in a dispute over Citigroup’s handling of the funds, had received subpoenas from the SEC, the paper said.

They spoke to the SEC in 2009 and again this past summer, the sources told the paper.

The SEC declined to comment to the Journal. Citigroup declined to comment in detail, citing the regulatory probe, the paper said. Citi, however, denied misleading investors, saying its disclosure was adequate, the WSJ reported.

The SEC and Citi could not immediately be reached for comment by Reuters outside regular U.S. business hours.

Citi had maintained that the investors were notified the funds were more volatile than the stock market and that they could lose their entire investment, the Journal said.

(Reporting by Sakthi Prasad in Bangalore; Editing by Dhara Ranasinghe)

WASHINGTON – A federal judge said Friday that she plans to approve the government’s $75 million settlement with Citigroup Inc. over charges it misled investors about billions in potential losses from subprime mortgages.

U.S. District Court Judge Ellen Segal Huvelle said she first wants assurances that Citigroup will maintain new policies it adopted to ensure it will avoid such violations in the future. Citigroup and the Securities and Exchange Commission, which brought the charges, agreed to add such assurances to the settlement.

The SEC had accused Citigroup of making misleading statements about its holdings tied to high-risk mortgages. Citigroup had said it was $13 billion or less; the SEC said it exceeded $50 billion.

Huvelle had initially declined in August to approve the deal. She questioned why shareholders should be punished for the alleged misconduct of the bank’s executives.

On Friday, she said she could approve the settlement in a few weeks, once the assurances are added.

The SEC attorneys said the five-member commission would have to approve the proposed changes.

The $75 million that Citigroup is paying represents less than 0.3 percent of its $22.07 billion in revenue in the second quarter of this year.

The SEC and Citigroup agreed that the money will be distributed to shareholders who were harmed by the alleged violations — but not to any Citigroup executives or directors who were in place at the time in 2007. Nearly all of Citigroup’s top executives left the bank after the financial crisis.

Former Chief Financial Officer Gary Crittenden settled related charges with the SEC by agreeing to pay a $100,000 civil penalty. The former head of investor relations, Arthur Tildesley Jr., agreed to pay $80,000. Tildesley now is the head of cross marketing at Citigroup.

Citigroup’s current top 25 executives, excluding CEO Vikram Pandit, are getting multimillion-dollar salary raises in stock and potentially much more in bonuses, the bank announced in a news release Friday.

Citigroup, one of the hardest-hit banks during the financial crisis, received $45 billion from the government’s $700 billion financial bailout — among the largest rescues. Citigroup repaid $20 billion of the federal bailout aid in December. The other $25 billion was converted to a government ownership stake in the company, which the government has said it will sell by the end of this year.

WASHINGTON/NEW YORK (Reuters) – Citigroup Inc (C.N) on Monday urged a federal judge to approve a proposed $75 million settlement with U.S. regulators over its failure to disclose mounting losses on subprime mortgages.

In a court filing, Citigroup called the accord “fair, adequate, reasonable and appropriate.”

The third-largest U.S. bank by assets is hoping to convince U.S. District Judge Ellen Segal Huvelle to approve the settlement with the U.S. Securities and Exchange Commission, four weeks after she refused to do so.

A published report quoted her at the time as saying she refused to be a “rubber stamp.”

The SEC accused Citigroup of misleading investors by telling them from July to October 2007 that its exposure to subprime securities was only about $13 billion, only to reveal that November that the sum was more than $52 billion.

Soaring losses from risky debt led to a series of bailouts that left the government owning one-third of Citigroup, a stake it has been reducing. Citigroup shares, which traded above $50 in July 2007, closed Monday up 8 cents at $3.99.

In its filing, Citigroup said “the individuals involved in preparing the relevant disclosures acted in good faith,” and that only in hindsight might it be “tempting” to question what they had thought at the time.

Upon realizing it misjudged the risk of its debt, Citigroup “promptly” made additional disclosures, including plans to take billions of dollars of additional write-downs, the filing said.

Citigroup also said settling avoids possible “public and costly litigation” with the SEC, one of its main regulators.

In a September 8 filing, the SEC also urged Huvelle to approve the settlement, which it called “fair, adequate, reasonable and in the public interest.” It said it based the fine on how much Citigroup might have saved on bond issuances as a result of the lesser, earlier disclosures.

Citigroup agreed with the SEC that top officials, including then-Chief Executive Charles Prince and then-senior adviser Robert Rubin, were aware in the second half of 2007 that some higher-rated subprime mortgages were causing losses.

But the SEC said it decided to charge only former Citigroup Chief Financial Officer Gary Crittenden and former Citigroup investor relations chief Arthur Tildesley.

Crittenden and Tildesley agreed to pay $100,000 and $80,000 to settle respective administrative proceedings. Neither they nor Citigroup admitted wrongdoing in agreeing to settle.

Huvelle will hold a status conference September 24.

The case is SEC v. Citigroup Inc, U.S. District Court, District of Columbia, No. 10-01277.

(Reporting by Maria Aspan, Rachelle Younglai and Jonathan Stempel; Editing by Steve Orlofsky, Phil Berlowitz)

WASHINGTON – The government is defending as “fair and adequate” its $75 million settlement with Citigroup Inc. over charges it misled investors about billions in potential losses from subprime mortgages.

The Securities and Exchange Commission made its case in a filing Wednesday to a federal judge, who said last month she was “baffled” by the proposed settlement and wasn’t ready to approve it. The SEC said the $75 million penalty is “fair, adequate, reasonable and in the public interest.”

The SEC announced the settlement in late July. The agency had accused the third-largest U.S. bank of repeatedly making misleading statements in calls with analysts and regulatory filings about the extent of its holdings tied to high-risk mortgages. Citigroup had said the exposure was $13 billion or less; the SEC said it exceeded $50 billion.

New York-based Citigroup was one of the hardest-hit banks during the financial crisis and received $45 billion from the $700 billion financial bailout — among the largest of the government rescues. The bank repaid $20 billion of the bailout in December. The other $25 billion was converted to a government ownership stake in the company, which the government has said it will sell by the end of this year.

When the housing bust hit in 2007 and borrowers defaulted, Citigroup’s losses reached tens of billions of dollars on complex instruments linked to mortgages, pushing the bank to the financial brink.

In a hearing last month, U.S. District Court Judge Ellen Segal Huvelle asked SEC attorneys why the bank’s shareholders should be punished for the alleged misdeeds of Citigroup executives. The agency also settled charges with former Chief Financial Officer Gary Crittenden, who agreed to pay a $100,000 civil penalty, and the former head of investor relations, Arthur Tildesley Jr., who agreed to pay $80,000. Tildesley now is the head of cross marketing at Citigroup.

“I look at this and say, ‘Why would I find this fair and reasonable?’ Huvelle said at the hearing. “You expect the court to rubber-stamp, but we can’t.”

The SEC said in its filing that the proposed $75 million fine also fully conforms with the agency’s guidance for corporate penalties. It was based on an economic analysis of Citigroup’s estimated gain through inflated prices for the securities and other factors, the agency said.

It said the proposed penalty “achieves a fair balance (of) providing compensation to injured shareholders without unfairly burdening current shareholders” of Citigroup. The $75 million represents less than 0.3 percent of Citigroup’s $2.7 billion in revenue in the second quarter of this year, the SEC noted. It “should not cause an undue negative financial impact on the company’s business, or significant harm to current Citigroup shareholders,” it said.

The bank has nearly $2 trillion in assets.

Other factors taken into account were the need to deter the alleged violation, remedial steps taken by Citigroup, and the bank’s cooperation with the SEC investigation, the agency said.

The SEC said it carefully considered whether other Citigroup executives also should be charged, and determined that such charges “were not warranted based on the investigative record.”

“No other individuals were tied to the misleading disclosures more closely than Messrs. Crittenden and Tildesley,” it said.

WASHINGTON – Banking titan Citigroup Inc. is paying $75 million to settle civil charges that it misled investors about its potential losses from subprime mortgages as the housing bust hit in 2007.

The Securities and Exchange Commission announced the settlement with Citigroup on Thursday. It said the company repeatedly made misleading statements in calls with analysts and regulatory filings about the extent of its holdings tied to high-risk mortgages. As borrowers defaulted, Citigroup’s losses reached tens of billions of dollars on complex instruments linked to mortgages, pushing the bank to a financial precipice.

Citigroup had said the exposure was $13 billion or less. The SEC said it exceeded $50 billion.

Citigroup earned $2.7 billion in the second quarter of this year. So the penalty represents less than 3 percent of its net income from April through June.

The settlement marked the second time in weeks that the agency reached an agreement on punitive action against a major Wall Street firm in connection with the financial crisis. Earlier this month, Goldman Sachs & Co. agreed to pay $550 million to settle civil fraud charges that it sold mortgage investments without telling buyers that the securities had been crafted with input from a client that was betting on them to fail.

Citigroup was one of the hardest-hit banks during the financial crisis. It received $45 billion from the $700 billion financial bailout — among the largest of the government rescues.

A current and a former Citi executive also settled charges with the SEC. Former Chief Financial Officer Gary Crittenden agreed to pay a $100,000 civil penalty. The former head of investor relations, Arthur Tildesley Jr., agreed to pay $80,000. Tildesley now is the head of cross marketing at the company.

New York-based Citigroup, Crittenden and Tildesley neither admitted nor denied the SEC’s allegations. But they did agree to refrain from future violations of the securities laws.

“We are pleased that we have reached agreement with the SEC to put this matter concerning certain 2007 disclosures behind us, and that the SEC is not charging Citi or any individual with intentional or reckless misconduct,” the company said in a statement.

SEC Enforcement Director Robert Khuzami said in a statement that Citigroup boasted of its superior ability to reduce its subprime exposure, even in the fall of 2007 as the subprime mortgage market quickly weakened.

“In fact, billions more in … subprime exposure sat on its books undisclosed to investors,” he said. “The rules of financial disclosure are simple — if you choose to speak, speak in full and not in half-truths.”

The SEC charged Citigroup with unintentional civil fraud.

Of the $45 billion that Citigroup received from the government bailout, $25 billion was converted to a government ownership stake in the company last summer. The bank repaid the other $20 billion in December. The government has said it will sell the $25 billion in stock by the end of 2010.

The SEC said in its lawsuit that Citigroup left out two categories of assets tied to subprime mortgages when it reported its exposure of $13 billion. The company didn’t disclose until November 2007 that it had more than $40 billion of additional exposure from those categories, the SEC said. By then, the value of those assets had declined.

Citigroup posted a $10 billion loss for the fourth quarter of 2007, the biggest in its 196-year history. Then-CEO Charles Prince was replaced by Vikram Pandit in December of that year.

The SEC also said that Crittenden and Tildesley were repeatedly given information about the full extent of Citigroup’s potential losses from subprime mortgage securities.

“Mr. Crittenden is pleased to have resolved this matter,” his attorney, John Carroll, said in a statement.

NEW YORK (Reuters) – Citigroup Inc (C.N) will pay $75 million to settle charges that it failed to disclose subprime exposure to investors in 2007, the U.S. Securities and Exchange Commission said on Thursday.

The SEC also charged a Citigroup executive and a former chief financial officer of misrepresenting the bank’s exposure, although not with intentional misconduct. It was one of a very few cases in which financial executives have faced any kind of charges, civil or criminal, related to the 2008 credit meltdown.

Earlier this month, Goldman Sachs Group Inc (GS.N) agreed to pay $550 million to settle civil fraud charges over how it marketed a subprime mortgage product. At the time, the SEC’s enforcement director said the agency was continuing to probe subprime deals across a wide variety of institutions.

It is unclear if he was referring specifically to the Citigroup probe, but the SEC in general has been looking at banks’ subprime misdeeds for years.

The comparatively small settlement against Citigroup came a full three years after the bank began understating its subprime exposure. To many analysts, it will prolong the financial sector’s pain.

“This is the type of stuff that erodes investor confidence,” said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel Inc.

It is also the type of stuff that feeds other lawsuits. Steven Singer, a plaintiffs’ attorney representing bondholders who are suing Citigroup on related charges, said the SEC’s settlement would be “very helpful” to his case.

Some analysts railed against the SEC’s actions.

“If the goal of the SEC is every two or three weeks to come out and say that there’s another financial company that’s done something wrong,” the agency will drive home the belief “that the financial system in the United States is rotten, that it’s run by crooks who create fraudulent products,” said Dick Bove, analyst at Rochdale Securities.

As investors wait for more regulatory shoes to drop, “the markets will continue to act in the volatile fashion that they are right now,” he said.

INDIVIDUAL RESPONSIBILITY

Citigroup understated its exposure by about $40 billion, the SEC said. The agency charged Citigroup with material omission of disclosure requirements.

Failing to disclose exposure is serious business to investors, who decide how much to pay for bank stocks in part by trying to figure out the real value of the company’s assets minus its liabilities.

Under the settlement, the bank did not admit or deny the allegations. The SEC has asked a federal judge to approve the agreement.

Citigroup spokesman Jon Diat said the bank was pleased that it had reached a deal with the SEC.

Former Chief Financial Officer Gary Crittenden, who left the bank in 2009, agreed to pay $100,000 under the settlement.

“This is the highest-ranking corporate officer to be yet named in the still-continuing investigation of the 2008-2009 crisis,” said John Coffee, law professor at Columbia.

Arthur Tildesley Jr, Citigroup’s former head of investor relations and current head of cross-marketing, agreed to pay $80,000.

Crittenden and Tildesley “were repeatedly provided with information about the full extent of Citigroup’s subprime exposure” during 2007, but both “helped draft and then approved” disclosures to investors that under-reported that exposure, the SEC said on Thursday.

Crittenden’s lawyer, John Carroll of Skadden Arps, said via email that the former CFO “did not admit or deny any liability” and “is pleased to have resolved this matter.”

Tildesley’s lawyer, Mark Stein at Simpson Thacher & Bartlett LLP, declined to comment and referred queries to Citigroup.

Diat called Crittenden “a highly valued senior officer” who “played a critical role in helping Citi navigate” the financial crisis. He said Tildesley is “a highly valued employee” who “is making significant contributions to the company.”

MISSING $40 BILLION

In the second and third quarters of 2007, Citigroup told investors that its subprime exposure was $13 billion or less, when in fact it was more than $50 billion, the SEC said. The $13 billion figure omitted two categories of subprime-backed assets totaling roughly $40 billion of exposure.

Citigroup did not disclose its true subprime exposure until November 2007. By the end of that year, it had posted a huge writedown on subprime assets. Its chief executive, Charles Prince, resigned, in large part because of the writedowns.

Citigroup’s bad bets on subprime and other assets eventually forced the government to provide $45 billion of capital to the bank across three rescues in 2008 and 2009. The government still owns an almost 18 percent stake in the bank.

Citigroup shares closed up 3 cents at $4.12 on the New York Stock Exchange on Thursday..

(Reporting by Maria Aspan; additional reporting by Dan Wilchins in New York and Emma Ashburn in Washington; Editing by Leslie Gevirtz, Maureen Bavdek, Matthew Lewis and Bernard Orr)

WASHINGTON – Banking titan Citigroup Inc. is paying $75 million to settle civil charges that it misled investors about its potential losses from subprime mortgages as the housing bust hit in 2007.

The Securities and Exchange Commission announced the settlement with Citigroup on Thursday. It says the company repeatedly made misleading statements in calls with analysts and regulatory filings about the extent of its holdings tied to high-risk mortgages.

Citigroup said that exposure was $13 billion or less, when in fact it exceeded $50 billion, the SEC said. Two former Citi executives also settled the SEC’s charges.