Citigroup Hit with SEC Fines over Fraud, Internal Control

Citigroup, the third-largest US bank by assets, was sued in two separate cases over multiple violations.

The US Securities and Exchange Commission on Friday fined Citigroup and its US broker-dealer subsidiary a total of $10.5 million for multiple regulatory failures related to a loan scheme that led the bank to cut profit by $475 million and fire at least a dozen of traders.

Citigroup, the third-largest US bank by assets, was sued in two separate cases over violations involving its books and records, internal accounting controls and trader supervision, the SEC said.

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In the first action, the US regulator said that it has ordered the broker-dealer affiliate of Citigroup to pay a $5.75 million penalty to settle allegations that it failed to properly supervise its employees, which allowed them to mismark illiquid positions in certain proprietary accounts they managed from 2013 to 2016, and in two cases covering losses from unauthorized trading.

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Once the company discovered the misconduct of its traders, the bank fired them and had to acknowledge $81 million in losses that were not previously reflected in its books and records. The SEC sanctioned Citigroup in part for not using an efficient market surveillance program to identify potential violations of trading rules earlier or independently verify the valuations of the mismarked positions.

In the second settlement, Citigroup agreed to pay a $4.75 million penalty to settle a separate negligence suit which accuses its Mexican subsidiary, Banamex, with making bogus loans to a Mexican oil services firm. The court said the bank conspired with the company to accept falsified work estimates and promises that loans are secured by state-run Petroleos Mexicanos, or Pemex.

“Today’s charges reflect the Commission’s view that Citigroup fell short of its obligations to supervise its traders and maintain appropriate controls to guard against fraud. Citigroup’s lax supervision and weak internal accounting controls allowed a handful of rogue traders to mismark positions over several years and, separately, resulted in the unnecessary loss of hundreds of millions of dollars of its shareholders’ assets to fraud,” said Marc Berger, Director of the SEC’s New York Regional Office.

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