Victor Menezes, Citigroup Inc.'s former head of emerging markets, may face a federal insider-trading lawsuit over a $29.8 million stock sale in March 2002, 18 days before it announced a $2.2 billion loss in Argentina.
The National Association of Securities Dealers released documents this month saying that Mr. Menezes, 55, received a so-called Wells notice in August from the Securities and Exchange Commission about the share sale. (A Wells notice is a formal warning that the SEC's staff has determined sufficient wrongdoing to bring a lawsuit.)
The issue could be particularly sticky for Citi, because the form recording Mr. Menezes' sale - of 597,000 shares, according to an SEC filing - was filed by Citi's legal department and signed by a staff lawyer. At that time Charles O. Prince, now Citi's chief executive, was its chief operating officer and had oversight of legal issues.
Mr. Menezes retired from Citi last year. Leah Johnson, a Citi spokeswoman who spoke for him, said the notice concerned a March 28, 2002, sale of Citi shares.
On that date Mr. Menezes sold 597,000 shares in two transactions for $49.99 apiece, or $29.8 million, according to a Citi filing with the SEC. That same day he exercised options on 850,000 shares in five batches and paid an average of $22.81 a share, or $19.4 million, the filing said.
"Although this exercise involved a stock sale, Mr. Menezes actually increased his ownership of Citigroup stock by 234,000 shares," Ms. Johnson said.
The sale involved more than twice as much stock as any other sale by Mr. Menezes.
On April 15, 2002, Citi said the first-quarter losses at its Argentine unit, which Mr. Menezes oversaw at the time, cut pretax profits by $858 million and reduced equity by $512 million. The New York banking company boosted loan-loss provisions and wrote down loans and investments after Argentina, South America's second-largest economy, defaulted on $95 billion of debt and devalued its currency. The default was the largest sovereign bond one in history.
Several high-profile regulatory issues have tarnished Citi's image. Last week the Federal Reserve Board told it to refrain from "significant expansion" until it gets its house in order.
