Citigroup Inc., the third-biggest U.S. lender, agreed to pay $285 million to settle U.S. regulatory claims that it misled investors about a $1 billion financial product linked to risky mortgages that defaulted within months of its sale.
Citigroup structured and sold the collateralized debt obligation in 2007 without telling investors that it helped pick about half the underlying assets and was betting they’d decline in value, the Securities and Exchange Commission said in a statement Wednesday. Credit Suisse Group AG agreed to pay $2.5 million for its role in selecting the assets, the SEC said.
Citigroup’s settlement, the third-biggest penalty paid for conduct related to the credit crisis, is the latest SEC action against banks that bundled and sold securities linked to the housing market. Goldman Sachs Group Inc. paid a record $550 million in 2010 for failing to tell investors that a hedge fund that helped select a CDO’s assets was betting it would decline. JPMorgan Chase & Co. paid $153.6 million in a similar matter in June, and SEC officials have said more cases are on the horizon.
The approximately 15 clients in the deal known as Class V Funding III lost virtually their entire investments. Citigroup received about $34 million in fees and reaped about $126 million in profits from the short position, according to the complaint.
