Citigroup pays out $100m to settle US charges that it marketed debt fraudulently
Top City firms could face huge fines after Citigroup yesterday agreed to pay the New York authorities $100m to settle charges it marketed US auction debt fraudulently.
The banking giant also agreed to buy back $7.5bn (£3.75bn) of illiquid securities by November following the landmark agreement.
On current estimates Citi could lose $500m by buying the securities, reflecting the difference between the original purchase price and the market value.
The deal could pave the way for more banks to negotiate settlements after the controversial $330bn US auction-rate securities market imploded in February, affecting thousands of retail investors and businesses that bought them.
Citigroup was accused of marketing the securities as safe and highly liquid assets. The settlement with the New York Attorney General and the US Securities and Exchange Commission will also see it attempt to liquidate $12bn of auction rate debt sold to institutional investors by the end of 2009.
UBS was last night thought to be close to its own settlement, while dozens of financial institutions have been subpoenaed by the New York Attorney General, including the Bank of America and the Royal Bank of Canada. Merrill Lynch last night offered to buy back $10bn worth of the securities sold to 30,000 of its clients, while Credit Suisse is being sued by French firm ST Microelectronics for placing $450m of its cash into auction-rate securities without permission.