Report: Citigroup under probe for role in financial bust

Nov 8, 2010, 21:15 GMT

New York - The list of Wall Street giants under probe for deceiving investors in the lead up to the 2008 financial crisis appears to have grown little longer.

Citigroup has joined Goldman Sachs and JPMorgan in probes by the Securities Exchange Commission (SEC) into possible wrongdoings, The Wall Street Journal reported Monday.

Former Citigroup brokers - who worked for the Citigroup-owned Smith Barney in California - have reportedly been testifying since summer 2009 about thier experiences, the Journal reported, citing sources close to the probe.

The brokers resigned in 2008 after concluding the bank had not disclosed the full risk of some of the 'debt' funds its clients were investing in. They resigned in protest in 2008, just as the enormity of the financial crisis became known.

The funds invested in municipal bonds and mortgage debt, using borrowed money to enhance the bets, the Journal wrote.

In April, a US financial regulator charged powerhouse Goldman Sachs with defrauding investors in the run-up to the 2008 financial crisis that derailed the global economy, the first civil charges brought in relation to Wall Street's near collapse.

The SEC alleged that GoldmanSachs colluded with a hedge fund client to make money out of the sub-prime housing market - a controversial sector in which banks offered loans with fast-rising interest rates to homebuyers with a poor credit history.

The SEC said Goldman helped the client, Paulson, bet against its own sub-prime mortgage-backed securities. Such loans constituted a major chunk of the US housing market, the collapse of which led Wall Street to the brink of disaster in October 2008.

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