Citigroup in SEC settlement over auction-rate debt
Published May 7th, 2007
Citigroup has agreed to pay $200,000 to settle U.S. Securities and Exchange Commission charges that a brokerage it acquired manipulated auctions involving municipal and corporate bonds, the SEC said on Monday. The alleged violations took place at Legg Mason Wood Walker Inc. from January 2003 through June 2004, the SEC said. Citigroup took over Legg Mason’s brokerage in a swap for its own asset management business in December 2005.
The settlement is similar to a $13 million settlement last May by 15 Wall Street firms, including Citigroup, Goldman Sachs Group Inc and Merrill Lynch & Co. Inc. Citigroup agreed to pay $1.5 million in that settlement, without admitting wrongdoing. According to the SEC, Legg Mason failed to properly disclose it made bids for its own accounts to prevent auctions it was arranging from failing. A failed auction occurs when there are too many securities for sale and not enough demand, forcing issuers to pay higher rates.
Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates or dividend yields periodically reset through “Dutch auctions.” The rate or yield will be the lowest that all buyers are willing to accept and which results in the sale of all securities being auctioned.
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