Scandals

Citigroup Scandals

Citigroup has been involved with many scandals. Some of these are in specific businesses and are shared amongst other businesses within that industry, while some result from a conflict or collusion between different divisions of Citigroup. This second type of scandal have caused some to call into question the "financial supermarket" aspect of Citigroup.

Associates

The first major scandal of Citigroup was when it aquired the Consumer Finance company Associates First Capital in 2000. Associates was already under attack for what were called "predatory lending" practices, specifically the selling of single premium credit insurance. Upon being aquired the same attacks were turned towards Citigroup, who stopped the practice of selling the single premium credit insurance, and instituted other changes. In the end the company was fined for the former practices. The present combined consumer finance division, called CitiFinancial continues to share in the general contraversy over consumer finance.

Biased Research

The next major scandal was the acusation that Citigroup and other Investment Banks had stuck secret deals with companies that said that the Bank's Stock Research division would rate that company a "Buy" if it would do Investment Banking with that division. Implicated by that scandal was analyst Jack Grubman. This scandal led to some questioning if the financial services conglamerate concept would lead to conflicts of interest such as this. The premise of this question however, is considered by some to be somewhat flawed insofar as Research companies have almost always been owned by Investment Banks, even before the repeal of Glass-Steagal. The firm eventually payed the largest fine in the "global settlement" with the state, resulting from conflicts of interest between research and investment banking at Salomon Smith Barney.

To help put investors at ease, Citigroup hired one of its most outspoken critics, Sallie Krawcheck, to head Smith Barney (now a pure stock brokerage division), which was seperated from the investment bank within the corporate structure. It dropped the "Salomon" from the name, as this name historically denoted investment banking.

Primerica

Primerica is now the brand name given to Citigroups Multi-Level-Marketing insurance and other financial services sales force. This division was formerly known as A L Williams. Critics call it a cult, or critize it's sales practices. Historically A L Williams was the major force in popularizing Term Life Insurance. See the Primerica article for more details.

Enron, and Parmalat

Citigroup was also accused of helping Enron and other companies hide their losses by loaning money to those companies in a special way that would reduce liabilities visible on the balance sheet. In May 2004 the company agreed to pay $2.65 billion, or $1.64 billion after tax, to settle a class action lawsuit brought on behalf of purchasers of WorldCom securities.

Japan

Japan Private Banking Scandal

Citigroup removed three senior executives in the wake of a banking scandal in Japan. The scandal involved the Private Bank, the division that deals with very wealthy customers. It was alleged that the Private Bank failed to follow certain anti-money laundering procedures, that it used deceptive sales tactics, and that it assisted a customer in doing transactions which disrupted the financial markets or were fraudulent. This caused for the Japan regulators to shut down the Private Bank.

Deryck Maughan, a Citigroup vice chairman and head of Citigroup International, Thomas W. Jones, chairman and chief executive of the global investment management division, and Peter K. Scaturro, head of Citi's private bank, will be leaving the company. Maughan had been with Citigroup and its predessecor Salomon Brothers since 1983. Jones and Scaturro were both members of the Citigroup management committee. A memo from Chief Executive Charles Prince said that Citigroup President Robert B. Willumstad would take charge of the businesses run by the three departing executives.

Europe

Citigroup Proprietary Government Bond Trading Scandal

Citigroup was critized by the European Financial Governmence institutes for disrupting the European bond market by rapidly selling €11 billion worth of bonds on August 2, 2004 on the MTS Group trading platform, driving down the price, and then buying it back at cheaper prices. An investigation is pending.

Overview Citigroup / Travelers Group

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