Before he was ousted, former Citigroup Inc. chief executive Charles Prince made a highly public push to improve the New York company's reputation, which had been tarnished by a string of regulatory challenges.

But despite Citi's across-the-board focus on avoiding endeavors that put its reputation at risk, it is once again involved in a Wall Street regulatory flare-up — the broad investigation into whether investment banks misled investors about the liquidity of the auction-rate securities market last year.

To be sure Citi is one of several companies being investigated. But the disclosure Friday that federal and state regulators are probing it was coupled with an allegation by Andrew Cuomo, New York's attorney general, that the company destroyed evidence related to the matter and his threat to sue the company.

For now, observers are split on what the latest news means for Citi, and for Mr. Prince's legacy.

"With Citi, it did surprise me. I think for them it's a major tarnishing," Lawrence J. White, an economics and business professor at New York University, said in an interview Tuesday. "I know Citi is facing hard times … , but in terms of their long-run reputation, I would think keeping their customers whole, not leaving them out there to twist in the wind, would be the right thing to do, and I'm surprised Citi hasn't stepped up and dealt with it that way."

Donald R. van Deventer, the chief executive of the risk management specialist Kamakura Corp. in Honolulu, said Mr. Prince made a legitimate effort to shore up many of Citi's weaknesses. But in an interview Tuesday, Mr. van Deventer noted that the company nevertheless got caught up in Wall Street's broader move toward selling complex financial instruments, an inherently risky business because it was new — and because the investment bankers selling the products were often paid in large part through bonuses.

Jeff Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., cautioned against jumping to conclusions. "Like a lot of things in life, I'm sure this whole issue is not anywhere close to black-and-white," he said in an interview Tuesday.

Along with New York state, Massachusetts, Texas, the Securities and Exchange Commission is also investigating Citi. But regulators are also investigating other companies for what they say was aggressive marketing of auction-rate securities — whose interest rates are set at periodic auctions — during a period of obvious deterioration in trading. The investments grew in popularity last year, but as credit markets tightened, the auction-rate market collapsed in February.

Wachovia Corp. disclosed in May that the SEC had questioned it about auction-rate securities, and several investment banks have also been questioned. Last month, New York sued UBS AG, accusing it of promoting the securities as safe even while the credit crisis heightened.

Last week when Citi disclosed that it, too, was being investigated, it said that it had "acted in good faith and in the best interests of our clients both before and since auctions began to fail, and there is simply no basis for claims to the contrary."

A Citi spokeswoman declined to comment Tuesday, and American Banker could not reach Mr. Prince, who was succeeded in December by Vikram Pandit.

Mr. Prince, a former general counsel, became Citi's CEO in October 2003 when the company already was grappling with reputational issues. Citi's London fixed-income group became the object of regulatory scrutiny over a massive trade of euro-zone bonds, an act that was not illegal but for which the company later apologized. And Japanese regulators booted Citi's private bank out of the country and banned it from participating in government securities auctions.

Mr. Prince set about fixing public perception of the company. Roughly a year into his tenure as CEO, he said in a video presentation on the company's intranet: "The acts of a few can embarrass all of us and set back our efforts to set new standards for our industry." By 2005, addressing analysts after reporting second-quarter earnings that year, he said: "Under the heading of clearing the decks and putting the problems of the past behind us, I think the second quarter was really an exceptionally good quarter for us."

As Citi deals with its latest reputational challenge, Patricia McCoy, a law professor at the University of Connecticut, said it may be motivated to "make its customers whole," even if it is legally in the right. "They may say to themselves, just as a matter of good business, 'we will make a fair settlement just to garner your confidence in the future,' " Prof. McCoy said in an interview Tuesday.

"It's in their interest to make this go away," she said.

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