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Citi Still Haunted by Associates

SEC investigating accounting

February 28, 2007

By MortgageDaily.com staff

Citigroup Inc. is being investigated for accounting related to its 2000 acquisition of Associates First Capital Corp.

The Securities and Exchange Commission is conducting an investigation into the treatment of certain specific tax reserves and releases related to Associates, according to a recent SEC filing by Citigroup. The accounting in question is for the period during 2000 to 2004.

Citigroup purchased Associates in November 2000 and has been saddled with problems ever since.

About five months after the acquisition, Citigroup discovered the unit had funded more than 80 fraudulent loan transactions for $9.6 million in the Chicago area. Chicago police and prosecutors have tied some of that fraud to a $70 million crime ring that involved members of the violent Traveling Vice Lords street gang.

In 2001, the New York-based financial giant eliminated single-premium life insurance suspended business with more than 3,600 subprime mortgage brokers -- bringing to 64 percent the share of Associates brokers it cut off.

Later that year, just prior to Sept. 11, Citigroup agreed to pay as much as $20 million in refunds to an estimated 9,000 borrowers to settle an investigation by the North Carolina attorney general into allegedly deceptive practices at Associates.

In 2002, Citigroup Inc. agreed to pay the Federal Trade Commission $215 million to resolve charges that Associates engaged in systematic and widespread deceptive and abusive lending practices.

The SEC is also currently investigating the lender's treatment of certain potential Argentina-related losses in the 2001 fourth quarter.

As a result, the SEC has subpoenaed witness testimony and certain accounting and internal controls-related information for the years 1997 to 2004.

Citigroup, which declined to comment beyond what was said in the filing, stated it is cooperating with the SEC and cannot predict the outcome of the investigation.

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