JURIST - Paper Chase: Citigroup, SEC settle sub-prime mortgage exposure charges for $75 million

[JURIST] The US Securities and Exchange Commission [government website] announced Thursday that it has charged Citigroup Inc. [official website] with misleading investors about the company's exposure to sub-prime mortgage-related assets and settled with the company [press release; litigation release] for $75 million. The SEC alleged [complaint, PDF] that Citigroup "repeatedly made misleading statements about the extent of its holdings of assets backed by sub-prime in earnings calls and public filings." Citigroup represented that its sub-prime exposure was $13 billion or less, when it was more than $50 billion at all times, which SEC officials say contributed to the economic crisis.

The 2007 sub-prime mortgage crisis [BBC backgrounder] was precipitated by banks switching from funding mortgage loans through customer deposits to a new model where they sold the mortgages to bond markets, resulting in the banks being having less incentive to check the mortgages they issued. Earlier this month, the US House of Representatives voted 237 to 192 to approve the final version of financial reform legislation [HR 4173 materials], which focuses on increasing regulation in the financial sector. The House and Senate reached an agreement [JURIST report] on the final version of the bill, but were forced to re-open negotiations following the death of Democratic Senator Robert Byrd (WV) [official website] in order to ensure the bill's final passage in the Senate.