SEC Division of Corporation Finance no-action letter: Citigroup, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
October 19,2010
Gail S. Ennis, Esq.
WilmerHale
1875 Pennsylvania Avenue, NW
Washington, DC 20006
Re: SEC v. Citigroup Inc., Civil Action No. 1:10-cv-01277-ESH (District of Columbia) Waiver Request under Regulation A and Rule 505 of Regulation D Dear Ms. Ennis:
This responds to your letter dated today, written on behalf of Citigroup Inc. ("Citigroup") and constituting an application for relief under Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D under the Securities Act of 1933 (the "Securities Act"). You requested relieffrom disqualifications from exemptions available under Regulation A and Rule 505 that arose by reason ofthe Final Judgment as to Citigroup entered on October 19,2010 by the United States District Court for the District of Columbia in SEC v. Citigroup Inc., Civil Action No. I: 1O-cv-O 1277-ESH (the "Judgment"). The Judgment, among other things, permanently restrains and enjoins Citigroup from violations of section 17(a)(2) of the Securities Act, section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") and rules 12b-20 and 13a-Il under the Exchange Act. For purposes of this letter, we have assumed as facts the representations set forth in your letter and the findings supporting entry ofthe Judgment. We also have assumed that Citigroup will comply with the Judgment. On the basis of your letter, I have determined that you have made showings of good cause under Rule 262 and Rule 505 that it is not necessary under the circumstances to deny the exemptions available under Regulation A and Rule 505 by reason of entry ofthe Judgment against Citigroup. Accordingly, pursuant to delegated authority, on behalfofthe Division ofCorporation Finance, I hereby grant relief from any disqualifications from exemptions otherwise available under Regulation A and Rule 505 that arose by reason of entry of the Judgment against Citigroup. Very truly yours, £~jj~ Chief, Office of Small Business Policy

WILMERHALE
Gail S. Ennis
+1 202 663 6014(t)

October 19, 2010 +1 202 663 6363 (f)

gail.ennis@wilmerhale.com

VIA E-MAIL AND
FEDERAL EXPRESS
Gerald J. Laporte, Esq.
Chief, Office of Small Business Policy
Division of Corporate Finance u.s. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-3628 Re: Securities and Exchange Commission v. Citigroup Inc., 1:10-CV￾01277 (ESH) (D.D.C. October 8, 2010) Waiver Request under Rule 262 of Regulation A and Rule 505 of Regulation D Dear Mr. Laporte: . This letter is submitted on behalf of our client, Citigroup Inc. ("Citigroup"), the settling defendant in the above-captioned civil proceeding. Citigroup hereby respectfully requests, pursuant to Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D ofthe Securities and Exchange Commission ("Commission") promulgated under the Securities Act of 1933 ("Securities Act"), waivers of any disqualifications of exemptions under Regulation A and Rule 505 ofRegulation D that might be applicable to Citigroup and/or any of its affiliates as a result of the entry ofthe Judgment as to Citigroup (the "Judgment") on October 19, 2010, described below. It is our understanding that the Staff ofthe Division ofEnforcement (the "Staff') does not object to the grant of the requested waivers. BACKGROUND The Staff engaged in settlement discussions with Citigroup in connection with the investigation that resulted in the above-captioned civil action alleging violations of Section 17(a)(2) ofthe Securities Act, Section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 12b-20 and 13a-11. As a result of these discussions, prior to the filing of the civil action, Citigroup executed a Consent to Entry of Final Judgment ("Consent") that was presented to the Commission. In the Consent, Citigroup agreed to consent to a Judgment without admitting or denying the matters set forth in the complaint in the civil action (other than those relating to the personal and subject matter jurisdiction of the district court over the action). The Judgment resolves the Staffs investigation into Citigroup earnings disclosures in July and October 2007 that included statements about the investment bank's exposure to Wilmer Cutler Pickering Hale and Dorr LLP, 1875 Pennsylvania Avenue NW, Washington, DC 20006 Beijing Berlin Boston Brussels Frankfurt London Los Angeles New York Oxford Palo Alto Waltham Washington

WILMERHALE
Gerald J. Laporte, Esq.
October 19, 2010 subprime mortgages. The specific allegations are that Citigroup misled investors when it stated that it had reduced the investment bank's subprime exposure from $24 billion at the end of2006 to $13 billion or slightly less than that amount, while, in fact, the investment bank's subprime exposure also included approximately $43 billion of "super senipr" tranches ofsubprime collateralized debt obligations and related instruments called "liquidity puts" that were believed to have very low risk. Under the terms ofthe Judgment, Citigroup is permanently enjoined from violating Section 17(a)(2) ofthe Securities Act, Section 13(a) ofthe Exchange Act, and Exchange Act Rules 12b-20 and 13a-ll. Citigroup will also pay a civil monetary penalty of$75 million. DISCUSSION Citigroup understands that the entry ofthe Judgment may disqualify it and its affiliated entities from relying on certain exemptions under Regulation A and Rule 505 ofRegulation D promulgated under the Securities Act, because the Judgment will cause Citigroup to be subject to an order, judgment, or decree of a court of competent jurisdiction permanently enjoining it from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the Commission. See 17 c.P.R. § 230.262(a)(4). Ifthe Judgment in fact so disqualifies it, Citigroup is concerned that, should it or any ofits affiliates need to serve in the capacities subject to the disqualifications set forth in Rule 262, Citigroup and those ofits issuer affiliates who rely upon or may rely upon these offering exemptions when issuing securities would be prohibited from doing so. The Commission has the authority to waive the Regulation A and D exemption disqualifications upon a showing of good cause that such disqualifications are not necessary under the circumstances. See 17 C.P.R. §§
230.262 and 230.505(b)(2)(iii)(C).
Citigroup requests that the Commission waive any disqualifying effects that the Judgment may have under Regulation A and Rule 505 ofRegulation D with respect to Citigroup or its issuer affiliates on the following grounds:

1. Citigroup's conduct addressed in the Judgment does not pertain to offerings under
   Regulation A or D.
2. Citigroup is a fundamentally different company from the one that existed in 2007, when
   the conduct that is the subject ofthe Judgment occurred. Pursuant to a major restructuring ofthe Company in early 2009, the assets that were at the center ofthe Staffs disclosure investigation have been moved to Citi Holdings - a segment ofCitigroup that houses assets and businesses that have been deemed "non-core" and which it intends to sell or exit as quickly as practicable. Moreover, Citigroup's senior management has almost completely turned over since 2007. Citigroup has a new CEO, CPO, ChiefAdministrative Officer, and ChiefRisk Officer. In addition, nine ofthe Company's fifteen directors are new since 2007. And finally, since 2007

WILMERHALE

Gerald J. Laporte, Esq.
October 19, 2010
Citigroup has undertaken numerous steps to strengthen its risk management and control processes.
3. The disqualification of Citigroup and any ofits issuer aftiliates from relying on the
exemptions under Regulation A and Rule 505 ofRegulation D would be unduly and disproportionately severe given the nature of the violations addressed in the Judgment - none of which involve scienter-based conduct - and the extent to which disqualification may affect the business operations of Citigroup and those ofits issuer affiliates by impairing their ability to issue securities pursuant to these exemptions to raise new capital or for other purposes.
4. The disqualification of Citigroup and its issuer affiliates from the exemptions may place
Citigroup or its issuer affiliates at a competitive disadvantage with respect to third parties that might seek to invest in securities that rely on the regulatory exemptions. Moreover, the disqualification of Citigroup and its affiliates may have an adverse impact on third parties that have retained or will retain Citigroup and its affiliates in connection with transactions that rely on these exemptions.
5. The disqualification of Citigroup and its issuer affiliates from relying on the exemptions
available under Regulation A and Rule 505 of Regulation D would be unduly and disproportionately severe, given the fact that the Staffhas negotiated a settlement with Citigroup and reached a satisfactory conclusion to this matter that resulted in the issuance of an injunctive order compelling prospective compliance with specified federal securities laws and requiring the payment of $75 million in civil monetary penalties. The Staff ofthe Division of Enforcement, which negotiated the settlement after a nearly three-year investigation, has no objection to the waiver being granted. In light of the foregoing, we believe that disqualification is not necessary and that Citigroup has shown good cause that relief should be granted. Accordingly, we respectfully urge the Commission to waive the disqualification provisions in Regulation A and Rule 505 of Regulation D to the extent they may be applicable to Citigroup or any ofits affiliates as a result of entry ofthe Judgment.) I We note in support ofthis request that the Commission has granted reliefunder Rule 262 ofRegulation A and Rule 505(b)(2)(iii)(C) of Regulation D for similar reasons or in similar circumstances. See, e.g., General Electric Co., S.E.C. No-Action Letter (pub. avail. Aug. 11,2009); Investools Inc., S.E.c. No-Action Letter (pub. avail. Dec. 16, 2009); A.G. Edwards & Sons, S.E.C. No-Action Letter (pub. avail. May 31, 2006) (waiver after Securities Act
Section 17(a)(2) violation); Bear, Stearns & Co., S.E.c. No-Action Letter (pub. avail. May 31,2006) (same);
Goldman, Sachs & Co., S.E.C. No-Action Letter (pub. avail. May 31,2006) (same).

WIlMERHALE
Gerald J. Laporte, Esq.
October 19,2010
Please do not hesitate to call me at (202) 663-6014 regarding this request. Sincerely yours, AJ)~ Gail S. Ennis cc: Laura Josephs, Esq., SEC Division of Enforcement