Today the Securities and Exchange Commission announced that Citigroup agreed to pay $285 million to settle civil fraud claims.
The claims brought by the regulatory agency alleged that the bank misled investors in 2007 on a $1 billion collateralized debt obligation deal tied to subprime mortgages.
Basically, the SEC accused Citi of structuring and marketing a CDO called Class V Funding III, without revealing to investors they picked the underlying assets, while they were also taking a short position mortgage-backed assets knowing that it would ultimately decline in value, the SEC filing said.
The SEC also cited a CDO trader’s emails describing Citi’s Class V III portfolio as “dogsh!t” and “possibly the best short EVER!”
So today Citi settled with the SEC, but now the regulatory agency said it’s going after the leader on the CDO deal.
The SEC has charged Brian Stoker, a former Citigroup employee, as the one who was responsible for structuring the transaction, the filing said.
Sound familiar? It should.
In April 2010, the SEC sued Goldman Sachs and Fabrice Tourre claiming they failed to reveal to investors that hedge fund manager John Paulson helped select underlying assets for a CDO with risky mortgage securities called Abacus 2007-AC1, which the hedge fund billionaire later shorted.
Goldman later settled for $550 million in July 2010. Paulson hasn’t been charged.
Tourre, the young Goldman Sachs VP, who was accused of creating and selling a CDO filled with risky mortgages, is currently on leave at the bank. He was also recently denied permission to appeal one of the SEC’s claims brought against him.
Sounds like Stoker might find himself in the same boat as Tourre.
Here’s some more about Stoker.
- Stoker, 40, served as the director in the CDO structuring group at Citigroup from March 2005 until August 2008.
- According the SEC, Stoker was the one responsible for overseeing the structuring of Class VIII and drafting the offering memo and pitch book for the deal.
- In the past, he worked as a vice president at Merrill Lynch and an analyst at Carlson Capital in Dallas, Texas, according to his LinkedIn profile.
- He has his Series 7 and 63 licenses. However, he has not been a registered broker since 2008.
- Stoker, who currently resides in Pound Ridge, New York, lives in a $1.78 million colonial-style home.
- He completed his undergraduate degree at the University of Virginia. He earned his MBA at Harvard Business School, according to his LinkedIn profile.
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