Between May 2006 and August 2008, Citigroup raised over $71 billion dollars the offerings of bonds, and its preferred stocks, (which are not bonds, as their yields are merely precatory), to investors whom may have otherwise been led to believe were safe, conservative, higher than average yield investments.
Citigroup Sold Toxic Securities Linked to Mortgages
However, as set forth in the Consolidated Amended Class Action Complaint filed in the Southern District of New York, it was alleged that Citigroup sold these securities, while misrepresenting its exposure to several hundred billion dollars worth of toxic securities linked to residential mortgages. Investors in the Offerings did not learn the truth about Citigroup’s toxic mortgage -linked exposures until November 2008, when the Bond Class Securities plummeted in value following a series of admissions that revealed Citigroup’s disastrous financial condition. Indeed, the Company’s situation was so dire that the United States Government was forced to engineer an unprecedented $326 billion bailout to protect Citigroup – once the world’s largest bank – from a forced breakup or liquidation.
The principal driver of growth in Citigroup’s business since 2005 was extending and securitizing mortgages and other loans. Citigroup operated its business with an extremely high degree of leverage. At the end of 2007, the Company’s Tier 1 capital ratio-which measured Citigroup’s capital as a percentage of its assets at risk of default-reflected that Citigroup possessed just $7 of capital for every $100 of risky assets that it held.
During the time that Citigroup conducted the Offerings, the U. S. housing market plummeted, as home prices collapsed and millions of borrowers defaulted on their mortgages. Consequently, the Company’s riskiest exposures during this time period included: (1) as much as $66 billion of collateralized debt obligations (CDOs) backed by subprime mortgage assets; (2)$100 billion of assets in off-balance sheet structured investment vehicles (SIVs) that purchased a wide variety of subprime mortgage-related securities ; and (3) $213 billion of subprime and similarly risky mortgages that Citigroup directly owned.
Between November 17 and 21, 2008, the price of the Bond Class Securities collapsed and several of the preferred securities lost more than 50% of their value.
Citigroup appears to have vigorously fought the class action. Citigroup has also vigorously defended FINRA Arbitration claims against it based upon their misstatements in the offering materials and the misrepresentations by its stockbrokers and financial advisors in connection with the sale of these securities to the unsuspecting investment public as a safe or conservative investment.
Guiliano Law Group
If you have been the victim of securities fraud you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
