Citi in talks with SEC on mortgage assets probe: report

Financial services major Citigroup is in talks with the US Securities and Exchange Commission (SEC) to settle an investigation into whether it misled investors by not properly disclosing the amount of troubled mortgage assets, says a media report.     

Quoting people familiar with the matter, The Wall Street Journal has reported that Citi is in the early stages of negotiations with the SEC to settle an investigation into whether it misled investors by not properly disclosing the amount of troubled mortgage assets it held as the market began to implode in 2007.     

The daily noted that the development comes as Wall Street firms attempt to recover from a credit-market meltdown that triggered hundreds of billions of dollars in losses led to the demise of firms including Bear Stearns Cos and Lehman Brothers Holdings Inc.     

Attributing to people close to the situation, the report said one of the issues being debated inside the SEC is whether, as a recipient of government-rescue funds, Citi should pay a large penalty in the case.     

Citi has already received $45 billion from the Federal government and plans to raise an additional $5.5 billion in capital from private investors.

The daily, quoting people close to the situation, said SEC is also considering bringing cases against individuals related to the disclosure of mortgage assets, including the top executives.     

According to the report, Citi's settlement discussions stem from an investigation that began in 2007 following the entity's third quarter earnings.     

On October 1, 2007, Citi unveiled a preliminary projection, two weeks before the formal report of its earnings, forecasting a 60 per cent decline, based partly on a $1.3 billion loss on the value of assets tied to "subprime" mortgages and leveraged loans, the report noted.     

Citi said on November 4 that it faced new fourth-quarter losses in the range of $8-11 billion on its subprime-mortgage exposure, it added.     

The daily added that Citi disclosed for the first time that it held US subprime-mortgage assets totaling $55 billion — including $43 billion that had not been highlighted October 15.