Citi settles as big firms fret over obscenities …

July 29, 2010

Another stormy summer day in Washington, another high-profile lawsuit from the Securities and Exchange Commission — this one against Citigroup and former senior executives of the company.

Once again, it’s about disclosure, and the agency’s press release puts it succinctly:

“Citigroup repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages. Between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when in fact it was more than $50 billion. “

Two executives are also named in the case: Gary Crittenden, the company’s former chief financial officer, and Arthur Tildesley Jr., once head of investor relations and now head of “cross marketing” at Citi. Like Citigroup, both men are settling along with the announcement of the charges.

Getting from $50 billion of exposure to $13 billion is more than a rounding error. Apparently, by the SEC’s account, Citi was neglecting to count “super senior” tranches of collateralized debt obligations — the ostensibly safer slices of pooled bonds or bond-like assets — and “liquidity puts,” effectively a customer’s right to hand failing instruments back to Citi. The agency cites at least four occasions in which Citi lowballed the number in public, even as internal documents recognized the total. At one point, officials even considered information that the company’s disclosures on the issue were misleading, according to the SEC.

Citi, as is usual in these circumstances, isn’t admitting or denying wrongdoing, though it is coughing up $75 million. Crittenden, who is paying $100,000, and Tildesley, who is paying $80,000, also don’t admit wrongdoing.

So far, the company doesn’t seem to have the gumption that General Electric did a couple days ago when it all but admitted foreign-corruption allegations against it; Citi doesn’t appear to have put out a formal statement yet.

Meantime, we see from today’s Wall Street Journal that Citigroup is among the financial firms cracking down on potty-mouthed emails, out of concern for the corporate image. There’s software for that, of course — as the WSJ article mentions, Bloomberg terminals have long declined to let employees send messages containing certain indelicate words.

Too bad financial firms can’t cobble together filters for questionable disclosures. that might do an even better job of protecting their images.

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