Citi fined for fraudulent loans in Mexico, unauthorized trading

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Citigroup was fined $10.5 million for multiple infractions, including allegations that employees engaged in unauthorized proprietary trading, a practice that regulators famously restricted after the 2008 financial crisis.

Three Citigroup traders mismarked illiquid positions in proprietary accounts from 2013 to 2016, in two instances to cover losses from unauthorized transactions, the Securities and Exchange Commission said Thursday. Once the infractions were uncovered, the bank fired the traders and had to book $81 million in losses. The SEC sanctioned Citigroup in part for failing to detect the misconduct sooner and for inadequate supervision of the traders.

“Citigroup’s lax supervision and weak internal accounting controls allowed a handful of rogue traders to mismark positions over several years,” said Marc Berger, head of the SEC’s New York office.

Citigroup agreed to pay $5.75 million to settle the allegations tied to unauthorized trading. In a separate enforcement action, the lender also agreed to pay $4.75 million over claims that it failed to detect fraudulent loans issued by its Mexican subsidiary, known as Banamex. The bank settled both cases without admitting or denying wrongdoing.

“We are pleased to have these matters resolved,” Citigroup spokeswoman Danielle Romero-Apsilos said in an email.

Mexican bank regulators accused Banamex in 2014 of making loans that violated lending rules. When disclosing the incident, Citigroup Chief Executive Michael Corbat called it a “despicable crime” and vowed to punish anyone responsible.

The 2013 Volcker Rule prohibited proprietary trading, the practice of banks investing for themselves instead of buying and selling securities on behalf of clients. The regulation did give banks some flexibility to hedge positions, and the SEC’s Thursday order did not accuse Citigroup of violating the Volcker Rule.

Bloomberg News
SEC enforcement Crime and misconduct Penalties and fines Citigroup SEC