NEW YORK (Legal Newsline)-New York Attorney General Andrew Cuomo said Friday he intends to sue Citigroup Inc. over their marketing and sales of auction-rate securities.
The attorney general's office in a letter Friday said it intended to sue New York-based Citigroup Global Markets Inc. and Smith Barney for allegedly fraudulent marketing the securities and for destruction of documents subject to a subpoena.
David Markowitz, chief of the attorney general's Investor Protection Unit, wrote in the letter to Citigroup's counsel that the company "represented that auction-rate securities were safe, liquid, and cash-equivalent securities" to investors.
"These representations were false, and had a severe detrimental impact on tens of thousands of Citigroup customers," Markowitz wrote.
As for the documents allegedly destroyed by the financial services company, Markowitz said the company destroyed recordings of telephone conversations concerning the marketing, sale and distribution of the auction-rate securities after the materials had been subpoenaed.
"Citigroup has informed the Attorney General's Office that it is likely unable to recover the lost information on the destroyed tapes," Markowitz wrote. "Verbatim records of the most important witness statements during the most relevant period were therefore destroyed after the issuance and service of the subpoena."
Last week, the Democratic attorney general sued two UBS AG units for allegedly misrepresenting to clients the risks of investing in auction-rate securities for which the interest rate or dividend is reset periodically through an auction mechanism.
The market for auction-rate securities soured earlier this year.
Offering to settle, Cuomo's office said, among other things, Citigroup must buy back retail investors' securities at the price they were sold, reimburse retail investors for damages they have incurred and make institutional investors and corporations whole.
From Legal Newsline: Reach reporter Chris Rizo at chrisrizo@legalnewsline.com.