Citigroup Fraud In Mexico Said To Be “One Off”; Suspect Questioned

Citigroup Fraud In Mexico Said To Be “One Off”; Suspect Questioned

Citigroup Inc (NYSE:C), the victim of a recent $400 million fraud in Mexico, said they are “fairly confident” the fraud was an isolated incident.

Isolated incident, says Citigroup

“The only customer where we saw any issues like this was in this one client relationship. So we’re fairly confident that this, in fact, is an isolated incident,” John Gerspach, Citigroup Inc (NYSE:C)’s chief financial officer, said at an industry conference on Monday.

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$585 million in short term loans at issue

The issue stems from $585 million in short-term loans Citigroup Inc (NYSE:C) provided to Oceanografia S.A. de C.V. (OSA), a Mexican oil services company, through an accounts receivable financing program. OSA has been a key supplier to Petróleos Mexicanos (Pemex), the Mexican state-owned oil company.  When it was discovered that OSA was suspended from being awarded Mexican government contracts, both Cit and Pemex reviewed their credit exposure.  The review found that fraudulent receivables were placed on the books, upon which the loans were based.

Bank CFO: fraud didn’t uncover a fundamental weakness

The CFO’s remarks address concerns the fraud didn’t uncover a fundamental weakness in the third largest US bank’s risk control or accounting management procedures.  The incident, which is said to be a cause of embarrassment for first year Chief Executive Officer Michael Corbat, will result in the bank restating its fourth-quarter and full-year results by nearly $235 million.

FBI, SEC review situation as Mexican police are questioning a suspect

The incident is currently being reviewed by the Federal Bureau of Investigation, the Securities and Exchange Commission as the Mexican police investigation is said to have identified a suspect and is questioning the Citigroup Inc (NYSE:C) employee.

“I can assure you there will be accountability for those who perpetrated this despicable crime and any employee who enabled it, either through lax supervision, circumvention of our controls, or violating our Code of Conduct. All will be held equally responsible and we will make sure that the punishment sends a crystal clear message about the consequences of such actions,” Corbat said in a statement the day when the crime was originally uncovered.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)

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