Sense on Cents

Despite the fact that the Auction Rate Securities market totally froze in February 2008, Citigroup is accused of fraudulently marketing and selling the product even in August 2008. Bloomberg reports, Citigroup Accused of Selling Disguised Auction Bonds.

Just as you never find only one mouse or roach, to think this is the only incident of Citigroup selling disguised Auction Rate Securities would be amazingly naive. If Citigroup were engaged in this fraud in August 2008,  I would also bet that other banks were doing it as well. 

Regrettably, people in desperate straits do desperate things. Similarly, firms desperately in need of cash will also do desperate things. How many other investors purchased disguised bonds? Or, I should say, were sold disguised bonds?

How is it that a situation like this occurs? Internal cops, compliance and sales management, are asleep at the wheel. External cops, our friends at FINRA, are also asleep at the wheel. Who headed FINRA at that point? Our current SEC head, Mary Schapiro. (more…)