WASHINGTON, Nov 18 (Reuters) - U.S. securities regulators
considered charging at least six individuals in a 2010 case
against Citigroup Inc tied to the financial crisis, but
ultimately decided to charge just two, according to an internal
Securities and Exchange Commission staff issued Wells
notices to six individuals -- documents that suggested the
agency would recommend some action against them -- but charged
only the bank's chief financial officer and its director of
As part of that case, the bank last year paid $75 million
to resolve allegations that it mislead investors about its
exposure to subprime mortgage securities.
U.S. District Judge Ellen Huvelle initially refused to
approve the settlement, asking in part why the SEC pursued only
two individuals in the case.
In the watchdog report, most of the section dealing with
why only two individuals were charged is redacted.
But the report, released by the SEC, does provide unusual
details about the negotiations that resulted in the charges
against the two individuals, and provides some insight into
Citigroup's maneuvering to protect its employees.
Charges against the two executives -- particularly then-CFO
Gary Crittenden -- came only after extensive communication, and
some miscommunication, between the SEC and the bank's defense
By September 2009, Citigroup agreed to pay a penalty and
accept a fraud charge against the bank that did not include
admitting knowledge of or intent to commit wrongdoing.
The case against Crittenden proved much more thorny. SEC
staff initially sought fraud charges against him, but Citigroup
argued that a fraud charge against its CFO would have "very
large implications" for the bank.
One SEC witness, whose name is redacted from the report,
recalled that Citigroup was "trying to use whatever leverage
they had ... to get us to ... lay off the individuals," and
even brought in the chairman of Citigroup's board, Richard
Parsons, to talk to the SEC.
Crittenden refused to settle a fraud charge, according to
one of the SEC witnesses, because "he held some position in his
church" and "wouldn't be able to continue" if he took a fraud
charge, the report said.
A phone conversation between SEC enforcement director
Robert Khuzami and Citigroup's lawyer, Mark Pomerantz, touched
off a series of misunderstandings that led the bank's defense
team to believe fraud charges against Crittenden had been
But as the SEC staff started to reconsider the charges, top
SEC officials continued to negotiate fraud charges, confusing
Citigroup's defense team, according to the report.
The report said one of the bank's lawyers asked SEC
associate director Scott Friestad, "What the heck is going
It quoted the lawyer as saying, "I've known you for 16
years. I don't think I've ever had a call like this in my life
from you guys."
SEC staff ultimately decided to pursue a lesser charge
against Crittenden. The report determined that that decision
was made by enforcement staff, but the reason for it is largely
The report cleared the SEC enforcement director of
allegations that he improperly intervened in the
A Citigroup spokeswoman did not immediately respond to a
request for comment on the report.
(Reporting by Aruna Viswanatha)
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