The SEC has charged Citigroup Global Markets Inc. with misleading investors about a $1 billion CDO called Class V Funding III. When the U.S. housing market was showing signs of distress, Citigroup structured and marketed Class V III and exercised significant influence over the selection of $500 million of the assets included in the CDO. Citigroup then took a proprietary short position with respect to those $500 million of assets. That short position allowed Citigroup to profit in the event of a downturn in the housing market and gave Citigroup economic interests in the Class V III transaction that were adverse to the interests of investors. Without admitting or denying the SEC’s allegations, Citigroup has consented to settle.
“The securities laws demand that investors receive more care and candor than Citigroup provided to these CDO investors,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Investors were not informed that Citgroup had decided to bet against them and had helped choose the assets that would determine who won or lost.”
The SEC has also instituted settled administrative proceedings against Credit Suisse Asset Alternative Capital, LLC (CSAC), Credit Suisse Asset Management, LLC , and the Credit Suisse protfolio manager responsible for the transaction, based on their conduct in the Class V III transaction. The SEC has also brought a litigated civil action against a former Citigroup employee.
Citigroup To Pay $285 Million to Settle SEC Charges For Misleading Investors About CDO Company Profited From Proprietary Short Position Former Citigroup Employee Sued For His Role In Transaction
