According to the Securities and Exchange Commission (SEC), the financial institution took a short position against investors and made $160 million in fees and trading profits from the CDO after it defaulted.
Citigroup is believed to have had âsignificant influenceâ over the selection of the $500 million worth of assets in the investment portfolio and did not reveal its role in the process to investors.
Robert Khuzami, director of the SECâs Division of Enforcement, said: âThe securities laws demand that investors receive more care and candor than Citigroup provided to these CDO investors.â
âInvestors were not informed that Citigroup had decided to bet against them and had helped choose the assets that would determine who won or lost.â
Brian Stoker, the Citigroup employee responsible for working on the deal, was also charged by the SEC, as was the asset management unit at Credit Suisse which worked as the collateral manager for the transaction.
Citigroup agreed to pay the settlement without admitting or denying the findings by the SEC.
By JIm Ottewill