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SEC v. Citigroup Global Markets Inc. Case No. 11-cv-07387-JSR (S.D.N.Y.)

Sept. 1, 2022

In the Matter of Credit Suisse Alternative Capital, LLC (f/k/a Credit Suisse Alternative Capital, Inc.), et al.
Admin. Proc. File No. 3-14594

On October 19, 2011, the Commission filed a complaint against Citigroup Global Markets Inc. ("Citigroup"), the principal U.S. broker-dealer subsidiary of Citigroup Inc. (the “CGMI Action”). The complaint alleged that, from late 2006 to November 2007, Citigroup misled investors about a $1 billion collateralized debt obligation ("CDO") called Class V Funding III ("Class V III"). At a time when the U.S. housing market was showing signs of distress, Citigroup structured and marketed Class V III and exercised significant influence over the selection of $500 million of the assets included in the CDO. Citigroup then took a proprietary short position with respect to those $500 million of assets. That short position would provide profits to Citigroup in the event of a downturn in the United States housing market and gave Citigroup economic interests in the Class V III transaction that were adverse to the interests of investors. Citigroup did not disclose to investors the role that it played in the asset selection process or the short position that it took with respect to the assets that it helped select. See Complaint.

Citigroup was ordered, and paid a total of $285,000,000.00 in disgorgement, prejudgment interest and penalties. The Clerk was ordered to deposit the funds into an interest bearing account with the Court Registry Investment System (collectively, the "Fund"), pending further order of the Court. See Citigroup's Final Judgment.

On December 9, 2014, the Court appointed Damasco & Associates LLP as the Tax Administrator to fulfill the tax obligations of the Fund.

Also on October 19, 2011, the Commission issued a related settled order instituting proceedings (“Order”) against Credit Suisse Alternative Capital, LLC (f/k/a Credit Suisse Alternative Capital, Inc.) (“CSAC”), Credit Suisse Asset Management, LLC (“CSAM”), and Samir H. Bhatt (“Bhatt”) (collectively, the “Respondents”) for violating various provisions of the federal securities laws in connection with the structuring and marketing during late 2006 and early 2007 of a largely synthetic collateralized debt obligation (“CDO”) known as Class V Funding III (“Class V III”). According to the Order, approximately 15 different investors purchased notes in the Class V III offering from Citigroup Global Markets Inc. (“CGMI”), the principal U.S. broker-dealer subsidiary of Citigroup Inc. The Order held CSAC and CSAM jointly and severally liable for a total of $2.5 million in disgorgement, prejudgment interest, and civil money penalty, and Bhatt liable for a $50,000 civil money penalty. The Commission also ordered that a Fair Fund be created pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, for the disgorgement, interest and penalties paid by the Respondents. The Order also stated that “[a]dditional monies paid by any defendant or respondent in a related proceeding arising from the underlying conduct also may be added to this Fair Fund for distribution.” The Respondents made the payments as required by the Order, totaling $2.55 million (the “CSAC Fair Fund”). See the Commission’s Order: Release No. 33-9268

On February 9, 2017, the Commission issued an order approving a plan of distribution for the CSAC Fair Fund that directed the transfer of the CSAC Fair Fund of approximately $2.55 million to the CGMI Action to be combined with the Fund of approximately $285 million for distribution to harmed investors in accordance with a distribution plan to be established in the CGMI Action. See the Commission’s Order: Release No. 34-79997.

On May 23, 2017, the Court entered an order establishing a Fair Fund, for the $285 million in the Fund and the $2.55 million from the CSAC Fair Fund for a total of $287.55 million (the “Fair Fund”), and appointed RCB Fund Services, LLC as the Distribution Agent to oversee the administration and distribution of the Fair Fund to harmed investors. See the Court’s Order.

On July 1, 2019, the Commission filed a motion and memorandum in support of an order approving a distribution plan (the "Plan") and authorizing the disbursement of the CGMI Fair Fund in accordance with the Plan. See the Commission's Motion and Memorandum of Support.

On August 9, 2019, the Court entered an order granting the Commission's Motion and approving the Plan and disbursement of the CGMI Fair Fund. See the Court's Order.

The Plan provides for the distribution of more than $288 million to investors that were harmed by misrepresentations and omissions of material facts made in connection with the marketing of the Class V Funding III in accordance with the terms of the Plan.

For more information, please contact the Distribution Agent:

RCB Fund Services, LLC
Telephone Number: 866-894-8871

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