SEC, Citigroup reach settlement on securities auctions
Published May 9th, 2007
Citigroup will pay a $200,000 civil penalty to settle allegations of improper securities auction practices at the brokerage it acquired from Legg Mason.
The Securities and Exchange Commission said Monday that it had reached a settlement with Citigroup (NYSE: C), which took on Legg Mason’s brokerage operations as part of a huge asset swap in 2005.
The SEC alleged that from early 2003 through mid-2004, the brokerage then known as Legg Mason Wood Walker intervened in some securities auctions without disclosing its actions to investors.
Citigroup neither admitted nor denied wrongdoing in the settlement, which also involves a censure by the SEC.
The SEC’s allegations involved “auction rate securities” — municipal and corporate bonds and preferred stocks. The stocks and bonds have interest rates or dividend yields that are periodically re-set through auctions. The final rate at which all of the securities are sold is the “clearing rate,” which applies to the securities until the next auction.
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