This article talks about a lawsuit brought on Citigroup by the Securities and Exchange commission for misleading investors about a collateral debt obligation. Citigroup, who helped manage and select the assets in the investor's portfolio, took a short position on the portfolio, actually hoping investors would lose money. If investors lost money, then Citigroup would make a profit, something Citigroup employees unethically kept quiet. Citigroup reached a settlement in the case and paid $285 million back to cover the estimated $160 in losses from the portfolio.
Citigroup's actions were quite unethical in this instance . Their help in managing the assets created a huge conflict of interest, which should have been made clear to any possible investors. Reading this article made me very angry at the blatant corporate greed exhibited by Citigroup. Negligence of this type is sadly becoming commonplace in our financial sector, and gives credibility to the occupy wall street movement and other movements springing up around the country. In the terms of the settlement Citigroup neither confessed to or denied any wrongdoing, leaving them off the hook. Too bad firms can just buy their way out of more severe legal action.
This is actually a case of hedging against mortgage risk. So when Citigroup sold mortgages to investors it kept some on its books. When it realized the mortgages where going bad it bought even more hedges, and so it looked like it was betting against its investors.
ReplyDeleteI find these unethical business practices sad. These types of things is what gives capitalists a bad reputation. Making money is a good thing, but making it at the cost of your own customers is truly reproachable. If the economy is to recover we need strong and trustworthy businesses leading the way.
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