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Bloomberg's Jonathan Weil: Citi's Vikram Pandit May Have Violated Federal Securities Law

Jonathan Weil delivers bombshell evidence this morning that Citi CEO Vikram Pandit violated Sarbanes-Oxley and other securities regulations in early 2008.  Here's the gist of the case.  The OCC warned Pandit on Feb. 14, 2008 that Citi's valuation models for the mortgage-backed securities it owned were severely flawed.  Just over a week later, Pandit signed off on Citi's annual report, which stated that everything regarding valuation of its assets, including its mortgage-backed securities, was in proper order. 

This is yet one more instance in which a few intrepid reporters and bloggers have more on the ball than the SEC, FINRA, and the Department of Justice combined.

Weil's article is posted below.


Source - Jonathan Weil (Bloomberg)

What Vikram Pandit Knew, and When He Knew It

On Feb. 14, 2008, the Office of the Comptroller of the Currency sent a seven-page letter to Citigroup Inc.’s chief executive, Vikram Pandit, summarizing the results of a special supervisory review its bank examiners had recently concluded.

The gist of the regulator’s findings: Citigroup’s internal controls were a mess. So were its valuation methods for subprime mortgage bonds, which had spawned record losses at the bank. Among other things, “weaknesses were noted with model documentation, validation and control group oversight,” the letter said. The main valuation model Citigroup was using “is not in a controlled environment.” In other words, the model wasn’t reliable.

Here’s where the timeline gets curious. Eight days later, on Feb. 22, Citigroup filed its annual report to shareholders, in which it said “management believes that, as of Dec. 31, 2007, the company’s internal control over financial reporting is effective.” Pandit certified the report personally, including the part about Citigroup’s internal controls. So did Citigroup’s chief financial officer at the time, Gary Crittenden.

The annual report also included a Feb. 22 letter from KPMG LLP, Citigroup’s outside auditor, vouching for the effectiveness of the company’s financial-reporting controls. Nowhere did Citigroup or KPMG mention any of the problems cited by the OCC. KPMG, which earned $88.1 million in fees from Citigroup for 2007, should have been aware of them, too. The lead partner on KPMG’s Citigroup audit, William O’Mara, was listed on the “cc” line of the OCC’s Feb. 14 letter.
Unanswered Questions

So, what did Citigroup and KPMG know, and when did they know it? Those are questions the Financial Crisis Inquiry Commission should have answered, but didn’t.

The OCC’s letter to Pandit was one of hundreds of newly released documents the FCIC posted to its website before it closed shop this month. As far as I can tell, there’s no indication the commission asked anyone at Citigroup or KPMG to explain how they justified their assurances about Citigroup’s internal controls in the face of the OCC’s criticisms. KPMG’s name doesn’t even appear anywhere in the FCIC’s 545-page report.

The key players aren’t talking now, either. Pandit, Crittenden and O’Mara didn’t return phone calls. A KPMG spokesman, George Ledwith, declined to comment, as did an OCC spokesman, Kevin Mukri. A Citigroup spokeswoman, Shannon Bell, declined to discuss the OCC’s findings, though in an e-mail she said the certifications by Pandit and Crittenden were “entirely appropriate.”

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Reader Comments (15)

Feb 24, 2011 at 8:51 PM | Registered CommenterDailyBail
Plague Kills U.S. Scientist in First Laboratory Case in 50 Years, CDC Says

Feb 24, 2011 at 8:52 PM | Registered CommenterDailyBail
why this idiot still has a job at Citi is beyond me
Feb 25, 2011 at 12:18 AM | Unregistered CommenterSell Short
Jonathan Weil is good dude. I emailed him a couple of times with legal observations about his coverage of S.E.C. v. BAC, when Judge Rakoff was teeing off from the bench on the same stuff that gets all of us riled up. He always took the time for thoughtful responses.

This piece is representative of Weil, IMO...

Feb 25, 2011 at 2:45 AM | Unregistered CommenterCheyenne
Yep, Jonathan Weil has done a good job the last couple of years. I'm pretty sure we've highlighted his work before.
Feb 25, 2011 at 9:14 AM | Registered CommenterDr. Pitchfork
I think you're right, Dr. P. The amount of prima facie ridiculous statements on the blogs is what finally caused me to comment, following 2+ years of silently reading blogs. I'm pretty sure I read about Jed Rakoff here and decided to open my piehole.
Feb 25, 2011 at 7:06 PM | Unregistered CommenterCheyenne
When I was a kid, a guidance counselor suggested to his parents that Cheyenne needed a punching bag as an outlet for "his sadistic sense of humor." My parents concurred, over Chey's muffled objections.

The next night, while Mom and Dad were getting embarrassingly comfortable by the fire, I went to work on the bag. Two minutes later, pre-coitus downstairs yet, the bag had been rendered flaccid by an errant No. 2 lead pencil.

No one in the household slept well that night.

And yet not even that caper scared my well-meaning but sad-sack-investor Dad out of... Champion Spark Plugs stock. The man just wasn't good with dough.

But yet he knew every aphorism that the truly wealthy ever lived by. It was like hanging out with a garrulous David Tepper who couldn't find much less balance his checkbook.

What is one to do?
Feb 25, 2011 at 7:23 PM | Unregistered CommenterCheyenne
Just think, if they get rid of all those pesky laws (regulation), there would be no law to get caught breaking, hmmm.
Feb 25, 2011 at 7:34 PM | Unregistered CommenterS. Gompers
Yeah, so? I drove around sober tonight too, as the law rwquires.
Feb 25, 2011 at 8:20 PM | Unregistered CommenterCheyenne
Wall Street Is already operating Under Shariah Law , it has to so it can keep the Arabian Investors invested under their set of Shariah Law rules of Compliance , betcha don't know this ??

This is Why the FEDERAL RESERVE needs to be Audited .

Ok , heres another question for the Cronies Capitalism thats failing the US Economic Recovery , Did Hank Paulson switch gears with the TARP on who he bailed out due to these Shariah Law Compliance rules to keep this Fund invested in the US Dow Top 30 ?? I bet the Citi Group and other widely held investments by Arab investors in Wall Street Demanded this 33 % solvency guarantee be put in place or they would pull out their Investments in Wall Street , and so this forced the Federal Reserve to start bailing out these positions up to the point that with fanny and Freddy holding Key asset investment that the Federal Reserve could not bailout without causing major conflicts of Interest in the securities and other asset classes that would have caused major conflicts to rise up in firms across the sector , this forced Bush and Paulson at the Treasury to come to Congress for the Bailout money to then bailout the Firms that held Arab investments and this was why Paulson baited Congress and then switched the bailout , is my opinion .
in your video The Goldman Ex CEO had a cozy relationship with the Arabs , so you got to wonder is this Shariah Law Complience demand was what caused the economic crisis to unfold ;
http://dailybail.com/home/the-hammer-gets-hit-by-a-tree.html - this talks about Hank Paulson switching TARP funds Allocations .
and in your video here the Offical dodges simple questions , is it because of this Arab bailout possiblity that forced the Federal Reserve to Cash the Arab Investors a ## % garrantee or Wall Street Loses the Investors from Arabia ?? I bet this is what Happened .
http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.html - This is an interview where the Official responsible for finding out where the Federal Reserve Money is allocated towards has No Idea where any of the funds go , very strange , seems there could be some of the funds went to this Investor group to guarantee their Minimum required 33% solvency rate in any of their holdings don't you think ?? Read their requirements for Compliance page under
Screens for Shari´ah compliance

In this link Bernanke talks about bailout foreign investors starting in 2007 so maybe this Islamic Board demanded they be secured under Shariah rules they formulated , if so the US Investors have a right to know these things don't you think ???

Overview The Dow Jones Islamic Market Index℠

family includes thousands of broad-market, blue-chip, fixed-income and strategy and thematic indexes that have passed rules-based screens for Shari´ah compliance. The indexes are the most visible and widely-used set of Shari´ah-compliant benchmarks in the world.
To determine their eligibility for the indexes, stocks are screened to ensure that they meet the standards set out in the published methodology. Companies must meet Shari´ah requirements for acceptable products, business activities, debt levels, and interest income and expenses. The screening methodology is subject to input from an independent Shari´ah supervisory board. By screening stocks for consistency with Shari´ah law, the indexes help to reduce research costs and compliance concerns Muslim investors would otherwise face in constructing Islamic investment portfolios.

Shari´ah supervisory board
Screens for Shari´ah compliance
Feb 25, 2011 at 9:14 PM | Unregistered Commenterhungry4food
Jesus, that's a lot of text to absorb, esp. on a Friday night. Dar--war you with me?

I can't read all that without vomiting. Can you distill it down to a paragraph or two? Thanks in advance.
Feb 25, 2011 at 9:18 PM | Unregistered CommenterCheyenne
Cheyenne, If you are willing, I might like to have a word with you in private at a later date.
Feb 25, 2011 at 9:29 PM | Unregistered Commenterjohn

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