Citigroup Settles Misrepresentation Allegations for $3.5 Million

Citigroup, Inc., was fined yet again for actions - or in this case, inactions - relating to its subprime mortgage division. This time, the fine is $3.5 million to resolve regulatory claims. Citigroup, Inc., is the third largest bank in the United States. During the time period of January 2006 through October 2007, Citigroup posted incorrect information about three different residential mortgage-backed securities - known as RMBS - on its web site. Citigroup was asked several times to correct the information, but did not do so until early May 2012, according to the Financial Industry Regulatory Authority, also known as FINRA.

The costs for Citigroup's actions and inactions in dealing with the U.S. mortgage market are rising steadily. Citigroup agreed to pay $158.3 million in February 2012 because regulators accused the firm of declaring that some loans were fit for a federal insurance program, when those loans did not qualify. It must also pay its part in a $25 billion settlement between 49 states' attorneys general and mortgage lenders. Citigroup's part in this settlement is $2.2 billion.

The misrepresentation of data, and the reason for the latest fine, is historical performance data. The historical performance data is for securities that are similar to the securities that Citigroup offers. Investors use this information to determine whether future returns are going to be stopped because mortgage holders do not make loan payments, according to FINRA.

Citigroup did not verify security pricing. It also did not document steps it takes to determine whether the traders' prices were reasonable. Additionally, Citigroup did not keep the appropriate records that follow margin calls, which prompted FINRA to revise prices.

Citigroup will not admit or deny the allegations, but instead have been paying the settlements and fines thus far.

Source: Bloomberg Businessweek, "Citigroup to Pay $3.5 Million Over Faulty Subprime Data," Joshua Gallu and Donal Griffin, May 22, 2012

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