Robert Rubin, Citi Execs Knew They Were Selling High-Priced Garbage but Got a Pass from Regulators
The Securities and Exchange Commission is defending ($) a $75 million settlement agreement it struck with Citigroup for hiding from investors the extent of its subprime exposure. In a court filing, regulators maintained that the settlement, which was rejected last month by a federal judge, was “fair, reasonable, adequate, in the public interest and should be approved.”
Citigroup is accused of hiding exposure to more than $40 billion in subprime CDOs while telling investors in 2007 that it hadreduced its subprime exposure to $13 billion. Two Citi execs—former CFO Gary Crittenden and Arthur Tildesley, formerly the head of investor relations—were charged with making misstatements. (The two agreed to pay SEC fines but deny they did anything wrong.)
But when U.S. District Judge Ellen Huvelle rejected the settlement last month, she asked regulators to consider whymore executives weren’t also charged. (As we’ve noted, judges have increasingly challenged regulators’ settlements with big banks and objected to the lenience of the penalties.) The SEC's original suit repeatedly referenced “senior management” who knew about Citi's subprime exposure. The judge told the SEC to name names.
The SEC, in an appendix to its latest filing, named former CEO Chuck Prince and former Chairman Robert Rubin — among others — as the executives who were aware of the exposures that were not disclosed to investors.
The agency said it considered bringing charges against other executives, but decided against it. From the filing:
In addition to the claims asserted against Messrs. Crittenden and Tildesley, the Commission carefully considered whether claims should be asserted against other individuals in connection with the false and misleading disclosures concerning sub-prime exposure. After careful consideration, it was determined that claims against additional individuals were not warranted based on the investigative record. No other individuals were tied to the misleading disclosures more closely than Messrs. Crittenden and Tildesley.
Both the SEC and Citigroup declined to comment to Bloomberg. A spokesman for Rubin didn’t return Bloomberg’s messages, and neither did Prince. We've also reached out to Rubin and Prince.
As we noted, when Chuck Prince testified before the Financial Crisis Inquiry Commission in April, he denied that the company’s losses were a result of “a lack of proper reporting of information.”
Bloomberg also points out Rubin’s answer to the same panel:
Rubin, whose job was to meet with clients and advise on “strategic and managerial issues,” told the panel that warning signs of a crisis “were not obvious” and that he didn’t remember learning of the bank’s mortgage-linked collateralized debt obligations until the fall of 2007.
Citigroup’s subprime losses, as noted in our bailout tracker, ultimately resulted in multiple taxpayer-financed bailouts totaling $45 billion. The government expects, ultimately, to recover the full amount.