Wednesday, July 2, 2008
Citigroup's Argentina Bond Accounting
"Citigroup Inc. agreed to settle a lengthy federal investigation into its accounting of Argentina bonds during the debt crisis earlier this decade. ... In reaching the settlement with the [SEC], Citigroup agreed to cease and desist from future securities-law violations, a relatively light sanction. The SEC alleged Citigroup failed to keep accurate books and records and didn't maintain sufficient internal controls over accounting, but it didn't allege the New York bank committed fraud. ... We are very pleased to see this accounting matter from six years ago resolved with no fine or penalty,' said Citigroup spokeswoman Shannon Bell. ...The Argentina crisis saddled some banks, including Citigroup, with billions of dollars of losses. Many of the debt products at the heart of the currency credit crunch don't trade on public exchanges. And once the over-the-counter market for them dried up, banks turned to in-house models to value the debt. How banks came up with those models, what assumptions they used and how timely they were in taking losses are areas the SEC is interested in. ... The Citigroup case 'highlights the importance for all companies to make sure they conduct proper impairment analysis and use reasonable assumptions when they're valuing securities,' said Scott Friestad, co-deputy director of the SEC's enforcement division. 'In this instance, Citigroup failed to do that' when confronted with the crisis in Argentina. ... The SEC says Citigroup should have reported pretax losses between $236 million and $416 million, instead of the $82 million the bank reported", my emphasis, Kara Scannell and David Enrich (S&E) at the WSJ, 17 June 2008.
This is another SEC triumph for investors; a "cease and desist order", a nothingburger. Bell is pleased Citigroup got no "fine or penalty". Good. Look at Craig Giles (CG) fate, see my 25 June 2008 post. Was CG Citigroup's blood sacrifice to Mike Garcia (MG)? Should MG have thrown CG into a volcano's mouth? The SEC "alleged Citigroup failed to keep accurate books and records". Was that an FCPA violation? What's your opinion MG? Friestad indicates Citigroup did not "conduct proper impairment analysis". Do Friestad and the PCAOB think KPMG should have found this? If so, what will they do about it? Amazing, CG goes to prison over $2 million and Citigroup used its own models to justify not reporting at least $154 million ($236 - $82) in losses and no one is indicted, nor subject to a civil fine by the SEC.