Citibank Case Shows SEC Struggling to Punish Top Bank Officers for Crisis
By Joshua Gallu and Jesse Hamilton - Oct 20, 2011 12:01 AM ET .
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SEC’s Third-Biggest Crisis-Related Settlement Fails to Imp
“Let’s keep in mind that obviously not all losses in the financial crisis resulted from fraud and misconduct,” SEC Enforcement Director Robert Khuzami said yesterday in an interview with Bloomberg
“Don’t tell” a counterparty that Citigroup is shorting the security, former employee Brian Stoker wrote in 2006 to his unnamed supervisor. The agency sued Stoker, saying he was responsible for structuring the deal in which Citigroup failed to disclose that it had chosen about half the assets and was betting they would decline in value. No charges were announced against the supervisor.
That detail highlights a pattern in SEC enforcement cases that is drawing criticism from lawyers and lawmakers: Even as the agency has collected $2 billion in penalties from financial firms for wrongdoing related to the 2008 financial crisis, few top executives have been sanctioned, particularly in connection with complex instruments like collateralized-debt obligations.
“It’s very good to hold a corporation responsible, but these corporations are run by people,” Representative Michael Capuano, a Massachusetts Democrat and senior member of the House Financial Services subcommittee on investigations, said in an interview. “It’s impossible for me to believe” a firm would allow an individual to make deals without supervision that later “are found to be so beyond the pale that someone has to pay hundreds of millions of dollars in punishment.”
Stoker’s attorney, Fraser Hunter, said his client will “defend this lawsuit vigorously.”
The settlement with Citigroup announced yesterday was the third-largest to come from conduct related to the 2008 financial crisis. The biggest was a $550 million settlement with Goldman Sachs Group Inc. (GS) announced in July 2010, and the second-largest was a $300 million settlement with State Street Corp. (STT) announced in February 2010.
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