On October 15, 2007, Citigroup CFO Gary Crittenden lied to investors and analysts listening to the bank’s quarterly earnings call. He said that Citi’s subprime exposure had fallen to $13 billion — but that wasn’t true. In fact, it was more like $53 billion, once various super-senior tranches and liquidity puts were included. He knew all about those risks, he didn’t mention them, and as a result he has agreed to pay a $100,000 fine.
Now, the SEC has admitted that Bob Rubin knew about the risks too — along with Chuck Prince, Bob Druskin, and others. Rubin was chairman at the time: it was ultimately his job to oversee the management of the company and to ensure that shareholders were fully apprised of the risks on Citi’s balance sheet. But instead of pushing for transparency towards shareholders, he stood quietly by while Crittenden lied to them, and said nothing.
The SEC wants to settle with Citigroup — which is to say, impose pain on its current shareholders, many of whom are the victims here — without fining Rubin at all. That’s silly. I hope that Judge Ellen Huvelle pushes for some kind of formal punishment of Rubin. It couldn’t happen to a more deserving man.