SEC Division of Investment Management staff letter: Citigroup Global Markets, Inc.

Investment Advisers Act of 1940 Kevin P. McEney
Section 206(4) and Rule 206(4)-3
Associate Director and Chief Counsel
Division of Investment Management
U.S. Securities and Exchange Commission
I00 F Street, N.E.
Washington, DC 20549
Re: In the Matter of Auction Rate Securities Liquidity Issues Renardinn Citigroup Global Markets, Inc., File No. 10868 Dear Mr. Scheidt:
We submit this letter on behalf of our client Citigroup Global Markets Inc. ("CGMI"), in connection with a settlement agreement (the "Settlement") by CGMI arising out of the above referenced investigation by the Securities and Exchange Commission (the "Commission"). The complaint filed by the Commission (the "Complaint") concerned CGMI's conduct in connection with the marketing and sale of auction rate securities ("ARS"). Without admitting nor denying the allegations set forth therein, except for those related to the Commission's jurisdiction, CGMI consented to the filing of the Complaint, which alleged that CGMI misled tens of thousands of its customers regarding the fundamental nature of, and increasing risks associated with, ARS that CGMI underwrote, marketed, and sold. The Complaint further alleged that, through its financial advisers, sales personnel, and marketing materials, CGMI misrepresented to customers that ARS were safe, highly liquid investments comparable to money market instruments. The Complaint also alleged that, as a result, numerous customers invested in ARS funds they needed to have available on a short-term basis. In addition, the Complaint alleged that (i) in mid-February 2008, CGMI decided to stop supporting the auctions, and (ii) as a result of failed auctions, tens of thousands of CGMI customers held approximately $45 billion of illiquid ARS, instead of the liquid short-term investments CGMI had represented ARS to be. Finally, the Complaint also alleged that, by engaging in such conduct, CGMI violated Section 15(c) of the Securities Exchange Act of 1934. CGMI seeks the assurance of the Staff of the Division of Investment Management ("Staff7) that it would not recommend any enforcement action to the Commission under Section 206(4) of the Investment Advisers Act of 1940 ("Advisers Act"), or Rule 206(4)-3 thereunder (the "Rule"), if an investment adviser pays CGMI a cash payment for the solicitation of advisory clients, Wilmer Cutler Pickering Hale and Dorr LLP, 1875 Pennsylvania Avenue NW, Washington, DC 20006 Baltimore Beijing Berlin Boston Brussels London Munich NewYork NorthernVirginia Oxford PaloAlto Waltham Washington