Brokerdealer.com blog update courtesy of various news media sources, including below extract from FinAlternatives.
The US Securities and Exchange Commission (SEC) quietly provided a waiver to Citigroup that allows the brokerdealer a pass to “get-out-of-the penalty-box” and retain its “well-known seasoned issuer” status (aka WKSI), enabling the firm to resume selling hedge fund investments to clients of its private bank.
Citigroup’s exile from hedge-fund sales has proven short-lived.
The Securities and Exchange Commission on Friday granted the bank waivers from its so-called “bad actor” rule. That regulation, adopted last year, bars firms with a “disqualifying event” from participating in private offerings. Citi ran afoul of it after its $285 million mortgage-backed securities settlement was approved in August.
Prior to that, Citi had offered private-banking clients access to about 40 hedge funds. Citi can now resume those sales.
The SEC has also allowed Citi to retain its “well-known seasoned issuer” status, without which it could have faced delays in issuing equity and debt.
SEC Commissioner Kara Stein reportedly dissented from the waiver decision. She has in the past criticized the commission for granting so many, saying its website “is replete with waiver after waiver for the largest financial institutions,” creating the impression that “some firms are just too big to bar.”
Citigroup didn’t initially apply for a seasoned-issuer waiver when it agreed to settle charges with the SEC in 2011 because it was already serving a three-year WKSI suspension for separate charges it settled with the SEC in 2010. In that case, the SEC alleged the bank failed to disclose to investors nearly $40 billion in subprime-mortgage assets. The WKSI suspension related to those charges lapsed.
Kara Stein, a Democratic commissioner, dissented on granting Citigroup the expedited filing status, arguing that large financial institutions have been treated too leniently, said a person familiar with the matter.
Ms. Stein has repeatedly argued that the agency has been too lenient on the largest financial institutions and voted against providing a well-known- seasoned-issuer waiver for Royal Bank of Scotland Group PLC earlier this year after the firm reached a $612 million settlement with U.S. and U.K. regulators over allegations that traders at the bank tried to rig interbank lending rates. “Our website is replete with waiver after waiver for the largest financial institutions,” Ms. Stein said at the time, warning the commission’s decision to overturn RBS’s disqualification “may have enshrined a new policy—that some firms are just too big to bar.”
