Strange ... This never happens to MorganChase and Goldman Sachs metals traders


Citigroup Rogue Metals Trader Loses $20 Million

By Jonathan Stempel
Wednesday, September 13, 2006

NEW YORK -- A rogue Citigroup Inc. trader lost $20 million for the largest U.S. bank by hiding more than $300 million of gold and silver contracts and reporting fake prices, the New York Stock Exchange's regulatory unit said.

The trader, Gail Edmonds had as much as $373 million of open positions, nearly 75 times her trading limit, before the bank discovered her misconduct in early 2003 and fired her, the regulator said on Wednesday.

The exchange released documents describing Edmonds' activities in connection with its decision to fine New York-based Citigroup $500,000 for failing to properly supervise its precious metals trading desk.

"We are pleased to have this matter resolved," said Citigroup spokeswoman Danielle Romero-Apsilos. "The firm took immediate action when the matter was discovered and we have since strengthened our internal controls."

The law firm representing Edmonds did not immediately return a call seeking comment.

Edmonds' case is an example of the oversight and compliance breakdowns that current Chief Executive Charles Prince has tried to eliminate, and which have since 2002 cost Citigroup more than $5 billion in legal and regulatory settlements.

In April the U.S. Federal Reserve lifted a year-long ban on big acquisitions by Citigroup in light of Prince's efforts.

According to the exchange, Citigroup had in a 2000 internal audit found lax supervision and pricing procedures on its precious metals desk.

As a result, the bank "failed to discover Edmonds' misconduct for almost one year," it said.

By Jan. 8, 2003, her trades obligated Citigroup to deliver 903,300 ounces of gold worth $310.7 million and 4.3 million ounces of silver worth $20.3 million, the NYSE said.

Edmonds, now 40, in May agreed to a four-year securities industry ban, NYSE documents show. Neither she nor Citigroup admitted wrongdoing.

According to the NYSE, Edmonds traded commodities such as gold and silver bullion and coins, and was authorized to maintain open positions of $10 million during the day and $5 million at night.

At the time, Edmonds was the sole precious metals trader in Citigroup's global markets unit, the NYSE said.

Citigroup began an investigation after two customers questioned the accuracy of its gold pricing.

But after learning in January 2003 that it overstated the value of some customers' accounts, Citigroup simply corrected the values on the customers' February 2003 statements rather than disclose the error, the NYSE said.

Prince became chief executive in October 2003. Through Tuesday the bank's shares had since risen 8 percent, lagging the Philadelphia KBW Bank Index's 27 percent gain.

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