Big Banks Keep Paying A Pittance To Settle Fraud Charges

This week, Citigroup announced that it had settled with the Securities and Exchange Commission over charges that the mega-bank misled investors in a derivatives deal and then bet against them. Under the terms of the settlement, Citi agreed to pay $285 million.

Citi is not the first bank to settle these sorts of charges with the SEC. Previously, Goldman Sachs had agreed to a $550 million settlement, while JP Morgan Chase paid $154 million. (Goldman’s settlement was over the now infamous “shi*ty deal.”)

Having to fork over hundreds of millions of dollars may seem like a lot, but it’s chump change to these banks. Citigroup, for instance, just announced profits of $3.8 billion for the last quarter alone, while JP Morgan made $4.2 billion. Goldman Sachs this week announced just the second losing quarter since the bank went public in 1999, but it paid its SEC settlement in 2010, a year in which the bank made $39.2 billion overall.

And as ProPublica pointed out, Citi’s settlement will not only cost it a pittance, but ends the SEC’s inquiries into the vast multitude of junk the bank peddled onto its unwitting customers:

The bank says it has settled all of its potential liability to a key regulator — the Securities and Exchange Commission — with a $285 million payment that covers a single transaction, Class V Funding III. ProPublica first raised questions about the deal [1] in August 2010. In announcing a case, the SEC said it had identified one low-level employee, Brian Stoker, as responsible for the bank’s misconduct.

It made no mention of the dozens of similar collateralized debt obligations, or CDOs, Citi sold to investors before the crash.

A bank spokesman said the SEC would not be examining any of those deals. “This means that the SEC has completed its CDO investigation(s) of Citi,’’ the spokesman asserted in an e mail.

“This represents extreme caution, at best — and a failure to grapple with the magnitude and harmfulness of the misconduct, at worst,” said Stephen Ascher, a securities litigator.


It’s already looking like the banks are going to largely get off the hook for widespread foreclosure fraud, trading protection for charges for some small amount of help for homeowners. When it comes to charges that they intentionally misled investors and then bet against them, while simultaneously setting the entire economy up for a fall, that’s basically what’s happened already.