Archive for the “Citigroup” Category

Citigroup CEO Vikram Pandit can’t seem to catch a break these days. And with good eason. For months, the bank and its leader have been embroiled in investor lawsuits connected to the marketing and sale of a group of proprietary Citigroup hedge funds sold under the brand names ASTA and MAT. Marketed to investors as safe fixed-income funds with losses not to exceed 5%, the hedge funds were later crucified by the credit crunch. Ultimately, the value of the funds fell dramatically - between 60% to 80% - and cost many investors their life savings.

Legal issues surrounding ASTA/MAT aren’t the only problems facing Pandit. Adding to his woes: $36 billion of net losses during the past six quarters.

More criticism was levied on Pandit last week courtesy of Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC). In a story appearing June 5 in the Wall Street Journal, it was reported that Bair’s office had been maneuvering to oust various members of Citigroup’s top executives. Specific individuals were not identified in the Wall Street Journal story, but Pandit’s name was rumored to be among those on Bair’s list.

Adding fuel to Citi’s management shake-up rumor mill is the apparent delay of a stock swap agreement between the U.S. Treasury Department and Citigroup. Announced three months ago, the deal entails converting $53 billion of Citigroup preferred stock into common shares, giving the U.S. government a 34% stake in the bank.

Another black mark occurred for Citigroup on June 1, which signaled the bank’s final day on as part of the Dow Jones Industrial Average. On Monday, June 8, Citigroup was replaced by The Travelers Companies.

Citigroup, which is the recipient of $45 billion in taxpayer funds under the federal government’s Troubled Asset Relief Program (TARP), has watched its stock deteriorate for more than a year now. Since mid-January, Citigroup shares have traded below $5. On June 8, the stock closed at a shocking low of $3.42; by comparison, the price was $20.48 at this same time last year.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Following a meltdown of the nation’s financial markets and the collapse of companies like Bear Stearns and Lehman Brothers, the big question on Wall Street became, who knew what when, and what did they disclose to investors? Now it appears at least one of those players, Citigroup, Inc., may shed some light.

As reported May 28, 2009, by the Wall Street Journal, Citigroup reportedly is in early negotiation talks with the Securities and Exchange Commission (SEC) to settle an investigation over whether the bank misled investors by failing to disclose the amount of troubled mortgage assets it held when the financial markets began to plummet two years ago.

The SEC initially launched its investigation into Citigroup’s valuation and disclosure methods following the bank’s third-quarter earnings report. Specifically, two weeks prior to the actual earnings release, Citigroup had predicted a 60% decline in earnings due largely to a $1.3 billion loss on the value of its subprime-related assets and other leveraged loans.

On Oct. 15, 2007, Citigroup said its third-quarter profit fell 57%, with higher losses of $1.83 billion on the same category of mortgage assets and leveraged loans. On Nov. 4, following a second mortgage-asset downgrade by Standard & Poor’s, Citigroup revealed that it faced new fourth-quarter losses of $8 billion to $11 billion on its subprime-mortgage exposure, according to the Wall Street Journal.

Citigroup further disclosed - for the first time - that it held subprime mortgage assets totaling $55 billion, including $43 billion that had never been mentioned in the company’s Oct. 15 report. The larger-than-expected losses came as a shock to investors and Citigroup executives alike, and ultimately prompted the resignation of Citigroup’s CEO Charles Prince.

Over the course of the next five quarters, Citigroup reported about $50 billion in losses, mostly related to mortgage-related assets.

In October 2008, Citigroup received its first injection of bailout money from the federal government totaling $25 billion. In November, the bank got an additional $20 billion, bringing the total amount of funds received under the government’s Troubled Asset Relief Program to $45 billion. In February 2009, it agreed to convert a portion of the TARP investment from preferred stock to common stock.

In addition to Citigroup, the SEC has opened inquiries into the valuation and disclosure methods at Merrill Lynch and Lehman Brothers, as well as other investment firms.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The maker of Valvoline motor oil has filed a lawsuit against Oppenheimer & Co., a subsidiary of Oppenheimer Holdings, over the sale of $194 million of auction-rate securities. According to the complaint by Ashland Inc., Oppenheimer misrepresented the liquidity and risks of the instruments at the time it sold them to the chemical company in 2007 and early 2008. 

When the market for auction-rate securities collapsed in February 2008, Ashland, like thousands of institutional and retail investors, found itself stranded with an illiquid investment that no one wanted to buy. Several months later, in an effort to settle investigations by state and federal regulators, many Wall Street firms, including Citigroup, UBS and Merrill Lynch, agreed to buy back billions of dollars of auction-rate securities from investors. Oppenheimer, however, opted not to participate in the ARS buy-back programs, contending it didn’t issue or underwrite the securities but only sold them.

In November 2008, Massachusetts’ Secretary of State William Galvin sued Oppenheimer, charging the firm with fraud and dishonest and unethical conduct in connection to its auction-rate securities business. Galvin not only wanted Oppenheimer to rescind all sales of auction-rate securities at par and make full restitution to investors who already had sold their securities but also sought to revoke Oppenheimer Chairman and CEO Albert Lowenthal’s Massachusetts registration as a broker-dealer agent of Oppenheimer, as well as fine the company and several senior-level executives.

Ashland filed its lawsuit against Oppenheimer on April 17 in the U.S. District Court for the Eastern District of Kentucky.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Citigroup continues to clash with institutional investors over auction-rate securities (ARS). This time, Braintree Laboratories is suing the bank for selling more than $33 million of the instruments and disguising them as money market investments. Braintree contends the sale, which occurred last year, was orchestrated at the very same time federal and state regulators were investigating Citigroup for fraudulent marketing practices relating to auction-rate securities.

In August 2008, in an effort to settle the investigations, Citigroup agreed to buy back as much as $20 billion worth of auction-rate securities from individual investors and small businesses. In addition, the bank paid a $100 million fine. Citigroup also agreed to provide loans to more than 2,500 institutions that held some $12 billion of the securities.

At issue in the Braintree case is the timing of the auction-rate securities sale. As reported in an April 17 article by Bloomberg, Citigroup apparently sold some of the securities to Braintree on Aug. 6, just one day prior to its settlement agreement with regulators.

According to Braintree’s complaint, Citigroup described the auction-rate securities to Braintree as “seven day rolls” and “government-backed money market investments that could be sold at par at any time on seven days’ notice.”

Now, Citigroup refuses to buy back the auction-rate securities from Braintree. As for the instruments, they remain illiquid and unredeemable until the year 2030.

Founded in 1982, Braintree Laboratories is a privately held pharmaceutical company based in Braintree, Massachusetts. 

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Hoping to permanently shatter the “Greed is Good” line made famous by fictitious corporate raider Gordon Gekko in the movie Wall Street, Andy Stern, president of the Service Employees International Union (SEIU), has sent a scathing letter to 29 financial services firms over executive bonuses tied to inflated profits on derivatives and other investments that ultimately turned out to be worthless. Stern called upon the companies, which included American International Group (AIG), Citigroup, Morgan Stanley, and JP Morgan Chase to either pay back the bonuses immediately or get prepared to face a slew of lawsuits.

The SEIU’s pension fund, known as the SEIU Master Trust, wants the firms’ boards of directors to review more than $5 billion in bonuses and stock option awards that were given to their companies’ top five executives since 2005.

In addition, the pension fund is demanding the companies overhaul their executive compensation practices.

 “The collective choices of top executives to reward themselves despite their failure to deliver a profit on their investments negatively impacted our pension fund and left our economy in shambles,” said SEIU’s Stern in an April 20 article by Bloomberg. “It’s as if these guys got a windfall payoff for betting the family’s savings on the wrong horse.”

All of the companies in question have come under fire recently over executive compensation issues. Leading the pack is financially troubled AIG, which has been bailed out by the U.S. government multiple times and received more than $185 billion in funds. Despite the taxpayer-funded rescue, as well as a $62 billion fourth-quarter loss, the insurer turned over $165 million in executive bonuses in 2008.

Meanwhile, pension funds investing in AIG and in other firms that awarded over-the-top bonuses to executives while their companies struggled financially have lost billions of dollars.

News of the AIG bonuses led Congress to create legislation in March that would establish a 90% tax on bonuses at any company receiving $5 billion in government aid.

The SEIU Master Trust held investments in all 29 financial services firms that received a letter from Stern.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

As Citigroup stock approached record lows of just above $1, CEO Vikram Pandit dismissed the performance in a memo to employees, telling them that Citi’s capital strength and earnings power ultimately would prevail.

Pandit’s memo was reproduced in a March 9 article in the Wall Street Journal. In the letter, Pandit acknowledged his disappointment with Citigroup’s stock price and what he called broad-based misperceptions about the company and its financial position.

“I don’t believe it reflects the strengths of Citi; our newly strengthened capital base, our unique global franchise and most importantly, the quality of our people. These are unprecedented times in the markets, but over time, the markets will recognize the many strengths of Citi.”

The memo went on to cite Citigroup’s best quarter-to-date performance since the third quarter of 2007 - the last time it made a quarterly net profit. Revenues, excluding externally disclosed marks, were $19 billion in January and February.

Pandit said the bank was confident about its capital strength after undertaking stress tests and using assumptions that were more pessimistic than those of the Federal Reserve. He failed to reveal, however, details about the so-called stress tests that Citigroup reportedly went through.

Pandit’s assessments of Citigroup’s future viability may come as a surprise to employees and investors alike. Since October, the company has received two federal bailouts: $45 billion from the Treasury Department’s Troubled Asset Relief Program (TARP) and an agreement for the government to cap losses on $300 billion of toxic assets.

One lawmaker who’s been opposed to bailing out troubled banks with taxpayers’ money is Sen. Richard Shelby. On March 8, the senator, who is a member of the Senate Banking Committee, referred to Citigroup as a “problem child.”

According to Pandit, the problem child is reforming itself. Only time will tell if investors are impressed with the results. So far, a $1 stock price indicates Citigroup has a long way to go before it regains investor confidence.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

KV Pharmaceutical Co. has filed a lawsuit against Citigroup Global Markets, accusing the bank of misrepresenting the risks of auction-rate securities (ARS). KV now says it is holding $72 million of illiquid auction securities, and has been forced to borrow capital and eliminate some 700 jobs.

The St. Louis-based drug company filed the lawsuit against Citigroup on Feb. 25. According to the complaint, Citibank intentionally lied about the ARS investments, characterizing them as safe and adhering to KV’s conservative investing objectives of liquidity and capital preservation.

Between May 2005 and February 2008, Citigroup allegedly advised KV Pharmaceutical to invest in student loan-backed auction-rate securities as an alternative to money-market funds. KV says Citigroup never informed the drug maker that the liquidity of auction-rate securities may be uncertain or that auction failures were a possibility.

The complaint goes on to claim that in late summer 2007, an internal Citigroup e-mail acknowledged severe “disruptions in the ARS market” and that “failed auctions had reached at an all-time high.”

These facts were never disclosed to KV Pharmaceutical, however. Instead, KV says Citigroup recommended buying even more auction securities. Following that advice, KV purchased nearly $28 million of auction-rate securities in late November 2007.

KV Pharmaceutical’s lawsuit is the second such lawsuit filed by an institutional ARS investor against Citigroup. On Feb. 6, American Eagle Outfitters also sued the bank for fraudulently inducing it to buy $258 million worth of auction-rate securities that the Pittsburgh-based clothing retailer can now only sell at a major loss.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.