As Citigroup Inc (NYSE:C) lowballs negotiations with the US Department of Justice, offering to pay just 40 percent on the bid to DoJ’s ask of a $10 billion dollar fine, the heat could turn up rather interesting information in a public trial.
Citigroup agreeing to settle for its role in creating fraudulent mortgage derivatives
Citibank is agreeing to settle for its role in creating what some charge as fraudulent mortgage derivatives that ultimately imploded in 2008, costing the world economy $12.8 trillion by conservative estimates from Better Markets.
Bloomberg is reporting in the opaque market that is big bank crime investigations, the DoJ put up an ask of $10 billion to make a criminal problem go away. Citi is on the meat clever for their role in packaging and selling financial products, marketing them appear as “prime” to buyers, leveraging their trusted brand, but in fact they were selling “sub prime” junk. It’s a classic pump and dump case involving misrepresentation. But here’s what’s interesting. The very people that are reputed to be at the top of the financial services food chain – the big banks, the “sophisticated” ones who should know – didn’t care to look at the quality of mortgages that were packaged in a mortgage security product. Don’t forget, many in the financial services industry have a fiduciary obligation. Apparently that fiduciary standard imposed on mid-sized brokerage firms, banks and other financial service doesn’t apply to large banks.
There is no question that if a mid-level brokerage executive were to package a fraudulent securities product, mislead the buyer of the product and then cause devastation that is still felt six years after the initial crash, that person would be in jail. But these are the big banks. A different legal standard is typically applied.
Citigroup report doesn’t mention of individual prosecutions
In the Citigroup Inc (NYSE:C) report, there is no mention of individual prosecutions – the penalty that would most effectively create deterrence to help prevent next great financial disaster. When a class of people – a small group of elites – engage in deceptive for profit business enterprises and are not held to account, additional deceptive behavior is likely to follow.
But little of this matters at the moment in the Citigroup Inc (NYSE:C) negotiations. Citigroup is going to be faced with a unique situation.
According to the Bloomberg report the DoJ is set to file a lawsuit as early as this week. If the lawsuit and subsequent trial occurs – and individual criminal wrongdoing is revealed – will individuals inside the bank then be exposed to criminal justice? Hard to tell at this point, but that is said to be the strategy in another trial, that of Jon Corzine, arguably the most power Wall Street made man to operate the levers of control in Washington DC.