State Bank of India and Citibank, N.A. Settle SEC Charges Involving An Unregistered Securities Offering
FOR IMMEDIATE RELEASE
Washington, DC, November 19, 2001 The Securities and Exchange Commission announced today that it has issued an order against the State Bank of India (SBI) and Citibank, N.A. (Citibank) finding that they violated federal securities laws by selling "Resurgent India Bonds" (RIBs) in the United States without filing a registration statement with the SEC.
The Order finds that between August 5, 1998 and August 24, 1998, SBI directly, and through the marketing efforts of a subsidiary and Citibank, raised approximately $532 million in the U.S. by selling RIBs to Non-Resident Indians (NRIs) and entities owned or controlled by NRIs. Of that amount, Citibank sold approximately $160 million of the bonds.
Under the Order, to which SBI and Citibank consented without admitting or denying the SEC's findings, the SEC directs both SBI and Citibank to cease violating Sections 5(a) and (c) of the Securities Act.
The Order's findings include:
SBI, the largest commercial bank in India, with offices in New York City (SBI New York), Washington, D.C., Chicago, Los Angeles and San Jose, announced in July 1998 that it hoped to raise more that $2 billion of foreign currency worldwide through the sale of RIBs. SBI entered into agreements with Citibank and others to act as "brokers" to seek subscriptions from eligible investors in the United States and throughout the world. Also in July 1998, SBI appointed "collecting banks," including SBI New York and Citibank, to act as regional centers where applications would be collected, processed and forwarded to SBI.
In SBI's pre-offering announcements, the RIBs were described as five-year denominated instruments carrying interest rates as high as 8%, transferable outside of India, and giftable within India. The announcements also stated that only NRIs and their affiliated entities could purchase the RIBs, and that the proceeds of the offering would be used mainly for infrastructure development in India.
In the United States, SBI and Citibank's NRI Services division principally conducted the marketing of the RIBs. Those marketing efforts were widespread and aggressive, and specifically targeted approximately one million NRIs living in the United States, many of whom were also United States citizens. Those marketing efforts included, for example, mass mailings to approximately 90,000 NRIs as well as cold calls placed by both employees and agents of Citibank and SBI.
SBI's marketing campaign featured the name "RESURGENT INDIA BOND," which SBI and its subsidiary displayed in all of their marketing materials in large bold capital letters. SBI's and Citibank's marketing materials repeatedly referred to the RIBs as "bond[s]" and "investment[s]," and frequently used terms commonly associated with securities offerings. Citibank's marketing materials also touted characteristics of the RIBs that are similar to government bonds, such as: (1) tax benefits; (2) transferability; and (3) proceeds to be used for infrastructure projects in India. While using such terms as "bond" and "investment," some of Citibank's documents also described the RIBs as "5-year fixed return deposit[s]."
SBI directly raised $182 million from approximately 12,000 NRIs and partnerships, corporations and other entities principally owned by NRIs. Citibank directly raised approximately $160 million from at least 5,000 NRIs and partnerships, corporations and other entities principally owned by NRIs.
The Order finds that the RIBs are securities and that SBI and Citibank violated Sections 5(a) and (c) of the Securities Act by offering and selling the RIBs when the offering of such securities was not registered with the SEC. The Order issued today orders respondents to cease and desist from committing or causing any violation and any future violation of Sections 5(a) and 5(c) of the Securities Act.