Courtesy of Pam Martens.
As we reported in August, the law firm Kirby McInerney agreed to settle a lawsuit against Citigroup on behalf of shareholders for $590 million over allegations that the firm issued materially false and misleading statements concerning Citigroup’s exposure to losses from collateralized debt obligations and other off-balance-sheet accounting tricks.
A careful reading of the 547-page amended complaint reveals a major U.S. financial institution that used every contrivance imaginable to inflate its earnings by gaming the system with high risk leverage, off-balance-sheet gambles it inevitably lost and dysfunctional checks and balances — all while its regulators were asleep at the switch.
The deeply researched document, unfortunately, leaves serious questions unanswered: where were the company’s auditors during all of these machinations? Who were the lawyers writing the prospectuses for these dodgy assets? How did Citigroup’s two chief regulators, the New York Fed and the Office of the Controller of the Currency, fail to rein in the myriad financial abuses that left the company teetering and needing a large-scale government bailout? And, most importantly, where are the criminal prosecutions by the Department of Justice?
Below are some of the most disturbing aspects of how this too-big-to-fail institution conducted its business:
Collateralized Debt Obligations (CDOs)
CDOs operate as offshore limited liability companies. There is no public reporting as to their asset holdings. This information is provided only to actual and potential CDO investors, through password-protected websites. Unknown to the investing public or its shareholders, Citigroup had been unable to sell the super senior tranches of the subprime CDOs it underwrote. They accumulated, both on and off Citigroup’s books, to the staggering sum of $55 billion.
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