In a truly remarkable turn of events Citi is essentially guilty of mis-representing the value in $7.5Bn in securities sold to investors. Merrill Lynch and UBS are also involved. The amounts ($20 Bn) and the names involved are simply staggering.

Clearly additional information is needed to better understand but the SEC has clearly taken a tough enforcement stance here. The fast and loose days are over for Banks.

FT.com / Companies / Financial services – Citigroup and Merrill in $20bn ARS agreements

In a key settlement with state and federal regulators, Citi agreed to buy back within three months $7.5bn of ARS held by individual investors and small businesses. ARS are long-term debts issued by municipalities and others whose interest rates are set at bank-backed auctions

…

The bank neither admitted nor denied wrongdoing but paid a $100m fine
to settle claims from regulators that it had misrepresented ARS as
liquid, cash-like securities.

…

Under the deal, Citi pledged fully to compensate small investors who
sold ARS at a loss after February 12, when the market collapsed. Citi,
which agreed to the deal within days of being threatened with a lawsuit
by Andrew Cuomo, the New York attorney-general, said the measures would
result in a $500m pre-tax loss.

…

After the Citi deal, Merrill announced it would offer to buy back ARS
it had sold to some 30,000 retail clients. There are $12bn of holdings
but Merrill said it expected there to be $10bn by the time it begins
the buyback in January 2009.