Mass. firms sue Citigroup for alleged ARS fraud

Several Braintree, Mass.-based firms filed suit yesterday in federal district court charging a Citigroup subsidiary with fraudulently selling auction rate securities while the firm was under investigation.
APR 17, 2009
By  Sue Asci
Several Braintree, Mass.-based firms filed suit yesterday in federal district court charging a Citigroup subsidiary with fraudulently selling auction rate securities while the firm was under investigation. In the suit — filed against Citigroup Global Markets Inc., a subsidiary of Citigroup Inc. of New York, and its brokerage and advisory unit, Smith Barney — Braintree Laboratories Inc., Braintree Holdings and Braintree Real Estate Management Co. LLC, claim that Citigroup sold them more than $33 million in auction rate securities at the same time the firm was being investigated by government agencies. The plaintiffs alleged: “While facing criminal and administrative investigations into its fraudulent sales of auction rate securities, Citigroup concealed from regulators and customers its continued sales of such toxic instruments by means of false and misleading descriptions, and also destroyed relevant evidence concerning its wrongdoing.” The suit claims that between June 2008 and August 2008, Citigroup sold the Braintree firms approximately $33.3 million in auction rate securities. “As late as August 6, 2008, the day before Citigroup publicly announced its partial settlement with the Securities and Exchange Commission and several state regulators, Citigroup sold auction rate securities to the Braintree entities,” the document stated. Further, it claims that Citigroup described the investments as “seven-day rolls” and stated that they were “government-backed money market investments that could be sold at par at any time on seven days’ notice.” In reality, the investments were illiquid auction rate securities, the suit said. The sales also took place close in proximity to “Citigroup erasing recordings of conversations involving employees at its auction rate desk,” according to documents. The plaintiffs are seeking the full price at which the investments were sold, other punitive damages with interest, and attorneys’ fees and costs. A spokeswoman for Citigroup declined to comment on the lawsuit.

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