Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, June 16, 2008

Citigroup Settles SEC Charges Relating to Argentina Crisis

The SEC and Citigroup settled charges regarding Citigroup’s accounting relating to the impact of the economic and political crisis in Argentina on the company’s operations during the fourth quarter of 2001. In the latter part of 2001 and continuing into 2002, Argentina experienced a severe economic and political crisis during which, among other things, the Argentine government defaulted on certain of its sovereign debt obligations, devalued its currency, and abandoned the one-to-one ratio between the Argentine peso and the United States dollar.  The actions of the Argentine government during the crisis required Citigroup to make a number of significant accounting decisions for the fourth quarter of 2001. Citigroup was required to account for (1) the impact of the company’s participation in a government-sponsored exchange of Argentine government bonds for loans (the “Bond Swap”); (2) the value of Argentine government bonds held by Citigroup that were not eligible for the Bond Swap (the “Non-Swapped Bonds”); (3) the sale of Banco Bansud S.A. (“Bansud”), the Argentine subsidiary of Banco Nacional de Mexico, S.A. (“Banamex”), which Citigroup had acquired in August 2001; and (4) the impact of government actions that resulted in the conversion of over $1 billion of Citigroup loans from dollars to Argentine pesos.   According to the SEC, Citigroup accounted for each of these items in a manner that did not conform with generally accepted accounting principles (“GAAP”) and overstated its income reported in the company’s earnings press release included in a Form 8-K filed with the Commission on January 18, 2002, and in the company’s annual report on Form 10-K for 2001 filed with the Commission on March 12, 2002.

Without admitting or denying the allegations, Citigroup consented to the entry of an Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”).

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