SEC Fines Large Bank $10mn Records, Controls

On Aug. 16, SEC fined Citigroup $10mn for records and controls.

  • Citi to pay $10.5mn for books and records violations and inadequate controls.
  • Actions on books and records, internal accounting controls, trader supervision.
  • From $81mn losses, due to trader mismarking and unauthorized prop trading.
  • With $475mn of losses, due to fraudulently-loans made by Mexican subsidiary.

Books and Records on Trading

  • Citigroup Inc. and US broker-dealer subsidiary Citigroup Global Markets (CGMI).
  • $5.75mn penalty for inaccurate books and records and supervision of its traders.
  • From 2013-16, three CGMI traders mismarked illiquid positions in prop accounts
    they managed, in two cases covering losses on widespread unauthorized trades.
  • Discovery of mismarking led to termination of the traders, and $81mn in losses.
  • CGMI failed to detect misconduct due to its inadequate supervisory procedures.
  • Included lack of independently verify the valuations of the mismarked positions.

Accounting Controls on Loans

  • Citigroup $4.75mn penalty for failing to devise and maintain accounting controls.
  • Subsidiary Grupo Financiero Banamex S.A. de C.V. loaned $3.3bn to Oceanografia.
  • Based on invoices and work estimates for services to Petroleos Mexicanos (Pemex).
  • Many work estimates were fraudulent and did not reflect amounts Pemex owed it.
  • Citigroup ultimately lost approximately $475mn as a result of Oceanografia fraud.
  • Banamex and Citi lacked the controls to verify the invoices before making of loans.
  • They ignored numerous red flags, which should have led to discovery of the fraud.