Globalisation:Citigroup

Controversies

WorldCom Scandal

In 2004, Citigroup agreed to pay $2.6bn (£1.4bn) to settle class action suits accusing it of participating in fraud with WorldCom, the phone company now known as MCI.

Shareholders sued Citigroup after the collapse of WorldCom and over allegations surrounding former Smith Barney (a subsidiary of Citigroup) telecom analyst Jack Grubman, who came under fire for hyping WorldCom and other hi-tech stocks.

WorldCom filed for the biggest bankruptcy in history in July 2002 amid accounting irregularities and Mr Grubman was subsequently fined $15m and barred from the securities industry for issuing misleading research.

Citigroup said it had agreed to settle federal class action suits brought on behalf of those who had purchased WorldCom stock and other securities from April 29, 1999, through June 25, 2002.

Charles Prince, Citigroup's chief executive, said the settlement was part of an effort "to put an unfortunate chapter behind us".

Global Crossing

In 2005 Citigroup paid $75m (£39.2m) to settle a class-action suit over its role in the collapse of telecom network provider Global Crossing.

The US banking giant had been accused of issuing inflated research reports and failing to flag up conflicts of interest in the three-year-old case.

European Bonds

Citigroup has been ordered to pay almost £14m to the Financial Services Authority as the penalty for a controversial trade in the government bond markets last year.

The world's largest financial firm is being forced to hand over £9.9m of profits from the trade and pay a £4m fine because of failures to control its bond business. This is the second largest financial punishment handed out by the City regulator after oil company Shell was fined £17m last year.

The American banking group escaped more draconian regulatory action after the FSA concluded it had not deliberately tried to distort the bond market when the trades took place on August 2.

However, Citigroup's reputation has suffered and it has been left out in the cold when European governments have considered bond issues.

Citigroup acknowledged the trading strategy - nicknamed Dr Evil - had harmed the business and insisted it wished it had never taken place. It involved using the MTS electronic trading system to sell as many bonds in 18 seconds as would usually be traded in an entire day. A trading error then forced Citigroup to buy back some of the bonds it had sold.

Citigroup and Japan

Japan's market watchdog has ordered US banking giant Citigroup to shut down its private banking operations there. Regulators said they found a list of problems at Citigroup's private banking arm, from improper trading practices to lax anti-money laundering procedures.

Japan's Financial Services Agency ordered the US banking group to suspend new private banking business by the end of this month, and gave it one year's breathing space to close all accounts at the four branches. They will have their licences revoked on 30 September 2005.

Among its charges, the FSA said the bank had brokered deals on such items as artworks without properly informing customers of the risks.

It also allowed transactions which "could be suspected of being associated with money laundering".

"In a management environment in which profits are given undue importance by the bank's headquarters, a law-evading sales system that disregards the laws and regulations of Japan was constructed," the FSA said.

Bank staff and managers, it added, had "obstructed inspectors", while responses to official inquiries "differed from the truth".