US banking giant Citigroup has forged a settlement with federal regulators and New York state authorities related to the marketing of billions of dollars of complex debt securities, US media reported Thursday. The settlement is expected to come on the heels of an investigation by New York state attorney general Andrew Cuomo into how Citigroup marketed so-called auction-rate securities. A Citigroup spokesperson could not be reached for comment. The Securities and Exchange Commission said meanwhile that it was poised to announce a “major enforcement action” involving auction-rate securities later Thursday. Linda Chatman Thomsen, the head of the securities watchdog's enforcement division, is due to unveil the announcement at SEC headquarters in Washington. An SEC spokesman also could not be reached for comment on the pending announcement. The Wall Street Journal reported that Citigroup was close to a deal with regulators that would likely resolve allegations of wrongdoing related to its marketing of the complex securities. Citing a person familiar with the matter, the Journal report said Citigroup could buy back between five and eight billion dollars of securities from its own customers, although the precise terms of a settlement remain unclear. Reports of the pending settlement come as a widespread credit crunch continues to weigh on major Wall Street banks. Some complex credit instruments, which formed a vital and lucrative business for many banks in recent years, have fallen sharply in value in the past year as the credit squeeze has spread from housing and mortgage loans into broader financial markets. Auction-rate securities, essentially debt instruments issued by financial firms, municipalities and student-loan companies, typically have a fairly lengthy maturity, but the interest rates on such securities can change at weekly and monthly auctions overseen by banks. Auction-rate securities have rates that set periodically. The $330 billion market was once considered safe, but a large part of it remains frozen after a February meltdown in which Wall Street stopped supporting the market. Citigroup was the largest underwriter of auction-rate debt in all but one year this decade, Thomson Financial data shows. A settlement could establish a precedent for settlements with rivals that face civil charges over auction-rate debt. It would also come years after Pandit's predecessor, Charles Prince, tried to clean up costly regulatory and legal problems tied to analyst research, and after the bank's role in the bankruptcies of Enron Corp and WorldCom Inc. Prince left Citigroup under pressure last November. The Financial Times, citing people familiar with the matter, reported that UBS AG is working on an auction-rate securities settlement, even as Citigroup finalizes its own agreement. Regulators have accused the Swiss bank and Merrill Lynch & Co of fraud over the securities. A UBS representative was not available immediately for comment on the FT report, neither were the SEC or Cuomo's office.
