Ex-Trader Says Citigroup Made $35 Mil “Front Running” Merger in 2010

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This is a pretty damning admission by an ex-trader at Citigroup.

The only viable solution to the out-of-control problem of endemic corruption in the financial sector is to dramatically increase the penalties for white collar crimes. For starters, mandatory multi-year jail time for all convicted perps and compensation of at least 10 times the amount stolen. Make it life imprisonment or even the death penalty the punishment for multiple time offenders. Keep in mind that financial crimes are usually mass crimes, ie, crimes against society, and should be heavily punished so to discourage this extremely selfish and antisocial behavior that threatens all Americans.

Moreover, how about all of the senior execs of a bank, including the CEO, being charged criminally as accessories to any unreported crimes committed by their underlings? That might add just a wee bit of emphasis to current efforts at supervisory and control systems at banks.

Related to this, an ex-trader at Citigroup, Perry Stimpson, has accused the notoriously corrupt, too-big-too-fail megabank of “front running” client merger deals with “can’t lose” foreign exchange trades to the tune of at least $35 million back in 2010.

He alleged:

“Our Investor Desk would comply with a weekly request from (a client) for details of Central Bank activity that Citi had transacted.”

Stimpson stated: “Another common practice on the Investor Desk was to cut and paste details of Citibank’s order book on to Bloomberg chats at the request of customers.”

“Now in the glare of scrutiny from regulators these activities look wrong. But at the time they were market convention.”

“If you look at any organization, surely you look to senior management,” Stimpson said. “The culture in any organization is set by senior management down. If you see senior management do something, it implies to you it’s OK.”

More on Citigroup front running claims

Stimpson is a ex-Citigroup forex trader who has made a claim that he was unfairly dismissed by the firm. In blockbuster testimony regarding events preceding his termination, Stimpson said the bank was handling a major M&A deal in 2010, and made $35 million in front running foreign exchange trades ahead of the deal. Analysts point out this would be a clear violation of Citigroup’s code of conduct.

Citigroup’s attorney, Diya Sen Gupta said in court on Thursday that “the allegations were investigated and are not, and were not, substantiated.”

Stimpson is representing himself at an employment tribunal hearing, and testified yesterday that the big deal had a foreign currency angle supervised by Citi execs Jeff Feig, the global head of trading in 2010, and Anil Prasad, who was the top man in foreign exchange.

According to Stimpson’s testimony, Citigroup bought positions in cash and options that moved the sterling rate higher before the deal was announced, enabling the bank’s traders to rake in a no-risk $35 million profit.

When contacted by Reuters to provide his side of the story, Feig refused to comment.

Prasad’s attorneys noted that “these allegations are baseless and are emphatically denied.”

An attorney for Citigroup highlighted that neither Feig nor Prasad were found to have committed misconduct after an internal investigation. He also claimed that both men resigned their positions for personal reasons that had nothing to do with the investigation.

Citigroup also claimed that all allegations of misconduct made by Stimpson in his disciplinary proceedings had been forwarded to the compliance department. If any misconduct by existing employees did occur, then disciplinary action has already been taken..

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