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SEC Widens CDO Probe, Pursues Settlement With Citigroup: Report

Wall Street

First Posted: 09/15/11 09:03 AM ET Updated: 11/15/11 05:12 AM ET

The U.S. securities regulator is widening its probe into mortgage-bond deals that ushered in the financial crisis, and is pushing for a settlement of more than $200 million with Citigroup, the Wall Street Journal said, citing people familiar with the matter.

The Securities and Exchange Commission officials are in advanced talks with Citigroup to settle civil charges related to a $1 billion mortgage-bond deal called Class V Funding III, the Journal said.

The SEC is especially looking into whether investors in some deals were properly warned that firms betting against the housing market had a role in choosing what mortgage-linked assets went into the deals, the people told the paper.

The agency is also negotiating a parallel settlement with Credit Suisse, which acted as collateral manager on the deal, the Journal said.

However, the Swiss bank likely would not face any charges related to the collateralized debt obligations (CDOs) it created and marketed, a person told the Journal.

SEC spokesman John Nester declined to comment to Reuters on the Journal report. Citigroup and Credit Suisse declined to comment to the Journal.

The regulators are also examining whether investors were misled in deals created by Japanese bank Mizuho Financial Group Inc, the Journal said.

The SEC's inquiry into Mizuho still is months from completion and might not result in charges being filed against the company, according to the paper.

The companies could not immediately be reached by Reuters for comment outside regular U.S. business hours.

In a similar case involving a CDO, Squared CDO 2007-1, JPMorgan paid $153.6 million to settle with the SEC in June.

Goldman Sachs Group Inc last year paid $550 million to settle a similar SEC case over another CDO, Abacus.

A CDO is a type of derivative product whose value and payments are derived from an underlying portfolio, often bonds or mortgages.

(Reporting by Sakthi Prasad in Bangalore; Editing by Vinu Pilakkott)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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