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Regulatory Sanctions

Citigroup Fined over 'Books and Records' and 'Trader Supervision' Violations

August 16, 2018

by Howard Haykin


Citigroup agreed to pay $10.5 million in penalties to settle 2 SEC two enforcement actions involving its books and records, internal accounting controls, and trader supervision. The charges stem from $81 million of losses due to trader mismarking and unauthorized proprietary trading and $475 million of losses due to fraudulently-induced loans made by a Mexican subsidiary. 


SEC FINDING – 1ST ENFORCEMENT ACTION.    From 2013 to 2016, 3 traders with Citigroup Global Markets Inc. (CGMI) mismarked illiquid positions in certain proprietary accounts they managed - in 2 instances covering losses from widespread unauthorized trading. Upon discovery of the mismarking, CGMI terminated the traders and recognized $81 million in losses.


The SEC concluded that CGMI failed to detect the traders’ misconduct earlier due to its inadequate supervisory procedures and systems and because it failed to independently verify the valuations of the mismarked positions.


SEC FINDING – 2nd ENFORCEMENT ACTION.    Between 2008 and 2014, Citigroup subsidiary Grupo Financiero Banamex S.A. de C.V. loaned approximately $3.3 billion to Oceanografia, S.A. (OSA) based on invoices and work estimates for services that OSA provided to Petroleos Mexicanos (Pemex), the Mexican state-owned oil company. Many of those OSA work estimates were fraudulent and did not reflect amounts Pemex actually owed to OSA, and Citigroup ultimately lost some $475 million as a result of OSA’s fraud.


The SEC concluded that Banamex and Citigroup lacked the controls necessary to verify the invoices before making loans to OSA and ignored numerous red flags that should have led to discovery of the fraud.


  • Citigroup Global Markets Inc. (CGMI) … is a New York corporation headquartered in NY, NY. CGMI is an indirect, wholly-owned subsidiary of Citigroup. CGMI is dually-registered broker-dealer / investment adviser.


  • Citigroup … is a financial services holding company headquartered in NY, NY. Citigroup’s common stock trades on the NYSE - ticker symbol, ‘C’.


  • Banamex … is a Mexican corporation and a wholly-owned subsidiary of Citigroup. It was created in August of 2001, when Citigroup acquired Banamex’s predecessor entity, Grupo Financiero Banamex-Accival. Banamex is a diversified financial services provider to a broad range of consumer and corporate customers, primarily in Mexico, and is the second largest bank in Mexico.


[For further details on these cases, click on SEC (Citi/CGMI) Order and SEC (Citi/Banamex) Order.]