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Citigroup Charged with Misleading Investors About Subprime Mortgages

The SEC has charged Citigroup Inc. with misleading investors about the company’s exposure in subprime mortgages. Citigroup repeatedly made misleading statements in conference calls relating to earnings and public filings. Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when in fact it was more than $50 billion.

Citigroup and the two executives settled the SEC’s charges. Citigroup will pay a $75 million penalty. Former chief financial officer Gary Crittenden will pay $100,000, and former head of investor relations Arthur Tildesley, Jr. will pay $80,000.

The SEC’s complaint states Citigroup’s management began to gather information on the investment bank’s subprime exposure as of April 2007. On four occasions in 2007, however, Citigroup stated that its investment bank’s subprime exposure was reduced to $13 billion from $24 billion at the end of 2006 — without disclosing the more than $40 billion in additional subprime exposure relating to the super senior CDO tranches and liquidity puts. Crittenden and Tildesley were repeatedly on notice of the information about the full extent of Citigroup’s subprime exposure. The SEC’s order finds that Crittenden and Tildesley caused Citigroup’s filing to be misleading to investors.

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