Posted on 10/23/2011 8:26:02 PM PDT by apoliticalone
The SEC alleges that Citigroup Global Markets structured and marketed a CDO called Class V Funding III and exercised significant influence over the selection of $500 million of the assets included in the CDO portfolio. Citigroup then took a proprietary short position against those mortgage-related assets from which it would profit if the assets declined in value. Citigroup did not disclose to investors its role in the asset selection process or that it took a short position against the assets it helped select.
Citigroup has agreed to settle the SEC’s charges by paying a total of $285 million, which will be returned to investors.
A fine paid by a corporation isn't going to serve as deterrent to the perps. Fifty years in prison without parole serves as a deterrent to these devious white collar criminals, but instead they will get to pay a fine that represents other people's money - shareholders. The system is corrupt.
This is fraud on the investors, who have a right to assume the bank is not going to game the system against them.
Handcuffs? If I were one of those investors I’d have some fisticuffs for them.
You are absolutely correct. This sort of criminal, immoral behavior will only stop when the persons who engage in it are led away in chains. If the only penalty for this despicable conduct is a fine paid by the corporate entity, the investment bankers and traders will continue to engage in it.
I won’t try to defend the actions of Citigroup, but I will say that the investors in these things were sophisticated customers who could have checked beyond the rating agencies to determine the underlying value of the CDS. In the old days,,institutions sold mortgages to others to generate more lending power, but the purchasers often “curbed” all the mortgages, meaning they looked at the property and the borrower and picked and choosed. It is likely the buyers of these CDS were commissioned by various investment groups to find AAA investments with good yields and were partners in crime. All of this doesn’t require Harvard MBA’s to figure out..a good old country banker would have done better and we need to put people like that back in power and authority.
And from whence does that 285 mil come?
It should come out of the hide of the a$$holes at Citi that thought up this scheme.
Isn’t there an argument somewhere along the line that a government that wants to raise our taxes needs to demonstrate some competence in the areas of enforcing its own laws, not just in securities, but on immigration? In other words, why should the government be rewarded for what it has failed to do?
Or, I take it, the premise is that we need to sacrifice so much more or our incomes so that the government can acquire those skills..? Sort of like a scholarship for the government.
I am not knowledgeable about derivatives and sophisticated transactions, but don't companies uses things like collars and strangles and such for downside protection on their investments?
a) the investment vehicles were CDO’s, not CDSs.
b) there is no easy way for a customer of a CDO instrument to discover the underlying mortgages that went into the pool, much less the underwriting standards used to make the loans that are part of that CDO.
The large bankers creating these CDO’s didn’t know what the underwriting standards were. They just knew from their inside information that the default rates were going up rapidly, and they had a good idea that the mortgages that were blended into the CDO were going to default. They banksters at Citi chose the notes put into that CDO for that reason. The prop desk of Citi wanted an instrument they could short into the ground.
c) CDOs are very complex to model. The ratings agencies had no business putting any rating on them, but they were paid to rate them by the bankers creating these instruments. This “pay for a rating” model is perhaps the biggest focal point of fraud in the entire scandal. A lot of investors would have never bought CDO’s, CMD’s, CDO^2’s, etc if the ratings agencies had been honest and said “We have no flippin’ idea how to evaluate these things.”
The root issue here is that Citi had no business selling this to long-side prospects. The instrument was *designed* to go down. Unless that information is divulged to the clients, there is clear and unequivocal fraud here.
From the SEC press release:
“The SEC alleges that during the time when the transaction was being structured, CSAC allowed Citigroup to exercise significant influence over the selection of assets included in the Class V III portfolio. The transaction was marketed primarily through a pitch book and an offering circular for which Stoker was chiefly responsible. The pitch book and the offering circular were materially misleading because they failed to disclose that Citigroup had played a substantial role in selecting the assets and had taken a $500 million short position that was comprised of names it had been allowed to select. Citigroup did not short names that it had no role in selecting. Nothing in the disclosures put investors on notice that Citigroup had interests that were adverse to the interests of CDO investors.”
Yes, they do. Those are options positions - they’re not a direct short.
However, what Citi’s prop desk did was not optioning on the underlying CDO.
The other alternative is for the SEC to make the fines so high, and demand payment so rapidly that the bankers start to become unprofitable. Without profits, they don’t hand out bonus packages.
The incentives should cut both ways: There should be an incentive to do well and do it correctly (ie, legally) by giving bonuses, and then there should be penalties so high that the pay package of every employee of the bank is significantly negatively affected when even only one bank employee breaks the law like this. Then we won’t need to worry about the SEC being everywhere. All it will take is for one employee to do a dirty deal and they all suffer. The typical human response takes over and the government won’t have to lift a finger. The mob mentality will do all the punishment that we could hope for, up to an including killing the guilty party.
Counterfeiting, of this nature, would be cleaned up real fast, if eligible hedging remedy would not be collectible for a minimum of fifteen years after a SECURITY is sold.
‘The vices of the rich and great are mistaken for error; and those of the poor and lowly, for crimes.’ Lady Marguerite Blessington, Irish novelist (1789-1849)
Yes, and the GOP is really blowing it bigtime by failing to admit that at least SOMEBODY on Wall Street may be deserving of the perp walk.
As it is Obama intends to ride show trials and debt repudiation to victory next fall.
Thanks for the explanation.
Ain't that the truth? How many times have you heard a typical politician say "let's look forward and not backward" when it comes to punishing or holding accountable cronies or others of their ilk, that have committed costly crimes or irresponsibility against the people? That's what we heard after 9-11 too even though I believe that heads should have rolled in our government.
I don't condone any illegal activity but if an average Joe were to say to the courts or officer after he was charged with speeding --- "let's look forward on this and not backward" he'd be laughed off stage.
Deterrence only comes with accountability. That rarely happens with the rich and powerful.
As it is Obama intends to ride show trials and debt repudiation to victory next fall.
That just might happen but Obama is more tight with Wall St than the GOP. To say the country is angry over the indiscretions of the overpaid bankers that have trashed our economy and created enormous debt worldwide is an understatement. If you want to see real anger wait until they start buying up our public assets on the cheap from strapped governments, such as parks and roads with Fed Reserve and our bailout money.
There is an obvious cover-up and lack aggressive action by the AG and SEC. The system has become so corrupt that the regulators are mere pawns to politics. Bernie Madoff got away with his scheme because the SEC dogs were repeatedly called off by crooked politicians (probably NY or NJ Senators) that were cronies of Madoff.
The IRS shuns investigating stashed off shore money from the very rich connected individuals because of their connections to corrupt politicians. Instead the IRS go after unconnected small business guys that earn relative chump change compared to the oligarchs. If one has $100K to donate to pols (its pocket change to a billionaire) he can buy protection and it is all legal.
The USA has reached the level of stage IV cancer with corruption. Unless we sweep out this corruption and get some integrity back into government (and frankly ideology does not always equal integrity) we're going to reach a point of no return in re-gaining control of our country from a corrupt governing class.
Jefferson may have had that in mind with his "Tree of Liberty" statement during the French Revolution. http://americancreation.blogspot.com/2009/08/jeffersons-tree-of-liberty-quote-in.html
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