Citigroup Bagged By SEC For Defrauding Muni Investors

Posted on August 18, 2015 by admin

BrokerDealer.com picks up where Bondbuyer.com leaves off in reporting an outsized fined against big bank broker-dealer Citigroup…

WASHINGTON – Two Citigroup companies on Monday agreed to pay $180 million to settle charges they defrauded investors by misrepresenting that investments in two now-defunct muni-related hedge funds were safe, low-risk and suitable for traditional bond investors.

New York-based Citigroup Global Markets and Citigroup Alternative Investments raised almost $3 billion in capital from about 4,000 investors between 2002 and 2007 through the two funds — ASTA/MAT and Falcon – before they collapsed in 2008 during the financial crisis, resulting in billions of dollars of losses, according to the SEC.

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Without admitting or denying the SEC’s findings, CAI, the investment manager for the two hedge funds, and CGMI, which employed the financial advisors that recommended the funds to investors, agreed to disgorge more than $139. 95 million of ill-gotten gains and pay prejudgment interest of more than $39.61 million to the SEC under the settlement.

Danielle Romero, managing director of global public affairs for Citigroup, said the company is “pleased to have resolved this matter.”

The SEC found the two Citigroup affiliates continued accepting additional investments and assuring investors of the funds’ safety even as they started to decline in late 2007. The “misleading representations” the Citigroup companies made were “at odds with disclosures made in marketing documents and written material provided to investors,” the SEC said in a release.

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CitiGroup Hired As Puerto Rico’s Broker-Dealer

Posted on July 10, 2015 by admin

Puerto Rico has hired CitiGroup as a broker-dealer as the island seeks to restructure its debt, an industry source said on Wednesday.

The bank will host a meeting with creditors in New York on Monday, Melba Acosta, head of the island’s Government Development Bank, said. That will be the first meeting with creditors since Governor Alejandro Garcia Padilla said a week ago that he wants to restructure its $72 billion debt.

The gathering will focus on a report released last week by three former International Monetary Fund officials that said Puerto Rico is in a dire position because of high debt, unstable finances and a stagnant economy. Governor Alejandro Garcia Padilla on June 29 said he would seek to delay some debt payments for “a number of years.”

His administration has yet to say which securities would be affected or how such a restructuring would work. Some bonds are protected by the commonwealth’s constitution or backed by revenue such as sales-tax collections. Garcia Padilla said the government would draw up a proposed restructuring plan by the end of August.

The meeting comes after the Puerto Rico Electric Power Authority paid all principal and interest due to bondholders last week, buying the publicly owned utility time as it works to reach a deal with creditors. The authority, known as Prepa, said it had agreed with creditors, which include bondholders, banks and bond insurers, to extend restructuring talks to September.

A bondholders’ group said in a news release that they would continue to work with Prepa to reach a long-term plan. In addition to negotiations about Prepa’s $9 billion in debt, the talks involve plans to modernize the utility’s operations.

Investors and analysts had feared a default by Prepa could be the first of many from the commonwealth. Now, there’s hope among some investors that the utility will work out an agreement that could be a model for restructuring other Puerto Rico agencies.

To get the full story, read this article by reuters.com.

BrokerDealer Citigroup is “Too Big to Bar”; SEC Silently Removes Bad-Actor Ban on Bank to Sell Hedge Fund Products

Posted on October 2, 2014 by admin

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.”

Rhythm BioPharma prepping for IPO

Posted on August 28, 2014 by admin

BrokerDealer.com blog post courtesy of extract from MarketWatch.com

BOSTON, Aug. 27, 2014 /PRNewswire/ — Rhythm, a biopharmaceutical company developing peptide therapeutics that address gastrointestinal diseases and genetic deficiencies that result in metabolic disorders, announced today that it has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission (SEC) relating to the proposed initial public offering of shares of its common stock. The number of shares to be offered and the price range for the offering have not yet been determined. Continue reading →

3rd Biggest US BrokerDealer Says SEC Should Slash Exchange Fees To Make Trading More Transparent

Posted on August 13, 2014 by admin

BrokerDealer.com blog update courtesy of extracts from Bloomberg LP and Traders Magazine

(Bloomberg) — Citigroup Inc., the third-biggest U.S. brokerdealer, told regulators they could steer more stock trading to public exchanges by making it more affordable.

The bank suggested the U.S. Securities and Exchange Commission cut the highest amount that can be levied to trade by at least two-thirds, according to a letter from Daniel Keegan, head of Americas equities at Citigroup. Most exchanges charge the maximum, 30 cents per 100 shares, leading traders to favor lower-cost dark pools, he wrote. His statement aligns Citigroup, which runs alternative trading platforms, with two of the biggest exchange operators.

Citi’s Daniel Keegan

As part of a rule change that took effect in 2007, the SEC “somewhat arbitrarily established a cap on access fees that can be charged to access liquidity on exchanges,” Keegan wrote in an Aug. 7 letter posted on the regulator’s website. “This cap should be revisited in light of today’s market economics.”

More than 15 percent of U.S. equity volume takes place on dark pools, according to Tabb Group LLC. NYSE Group Inc. and Nasdaq OMX Group Inc., two of the three big U.S. stock exchange owners, have both advocated regulatory measures to lure trading off the systems. Accusations of wrongdoing on the private systems have intensified this year amid Michael Lewis’s “Flash Boys” and a probe by New York’s attorney general, who alleged Barclays Plc misled its dark-pool clients.

Dark pools proliferated in the past decade as brokers sought to reduce the amount of money they pay the NYSE and Nasdaq Stock Market. Instead of giving exchanges trading fees, brokers could match buyers and sellers on their own systems.

The SEC’s Regulation NMS, which took effect in 2007, helped solidify that business model by allowing stock trades to occur on whatever market had the best price at a given time, be it public or private. Reg NMS also set the maximum exchange access fee at 30 cents per 100 shares, also known as 30 mils.

Citigroup’s LavaFlow Inc. division runs the 10th-biggest alternative trading system for U.S. stocks and charges 28 mils for shares priced above $1. It’s an electronic communication network, not a dark pool, meaning more data about trading is publicly available.

Citigroup’s suggestion of reducing the access-fee cap to 10 mils or lower could also restrain rebates that exchanges pay traders who facilitate transactions, a practice known as maker- taker that has been attacked by lawmakers and critics such as IEX Group Inc. and the chief executive officer of NYSE’s owner, Intercontinental Exchange Inc.

Rewarding Brokers

Stock markets use fees from traders to reward brokers who send them orders, a model some academics and money managers such as Invesco Ltd. and T. Rowe Price Group Inc. say creates a conflict of interest. Last month, Senator Carl Levin, a Michigan Democrat, told the SEC it should abolish the payments to improve confidence in U.S. stock markets.

Jeffrey Sprecher, the CEO of ICE, said during a recent congressional roundtable that exchange access fees should be reduced. His company, as well as Nasdaq, have endorsed a proposal called the trade-at rule, which would keep stock trades off dark pools unless those venues improved upon prices available on exchanges.

Nasdaq, operator of the largest exchange by volume, generated $1.1 billion in revenue from U.S. equities transactions in 2013 and gave out $743 million in rebates, according to an SEC filing. The comparable figures at NYSE Euronext, the owner of the New York Stock Exchange that ICE bought in November 2013, were $1.06 billion and $796 million, respectively, in 2012.