Updated to include Citi comment.
NEW YORK ( TheStreet) -- A high-profile analyst suggested on Monday that Citigroup (C - Get Report) management may have violated federal accounting rules by signing off on the bank's 2007 report and not disclosing regulators' concerns.
CLSA analyst Mike Mayo cited recent disclosures by the Financial Crisis Inquiry Commission, which showed that the Federal Reserve and the U.S. Treasury Department's Office of the Comptroller of the Currency had expressed concerns over Citi's losses and internal controls. He says Citi may have violated the Sarbanes Oxley Act, which Congress passed in 2002 after the Enron scandal. It requires extensive disclosures to protect investors against accounting fraud.
"Thus, the lingering question in our mind is why Citi signed off on its 2007 10-K as having effective controls in light of such problems," said Mayo. "This information is still relevant today because it reflects on the magnitude of the risk shortfalls and what we feel is the higher-than-perceived task of turning them around."Citi spokeswoman Shannon Bell said the bank has no comment on Mayo's report, but implied that his accusations were incorrect in discussing the company's accounting procedures. "Citi maintains rigorous disclosure controls and procedures to support its CEO and CFO certifications," said Bell. "These controls and procedures were followed in connection with the filing of the 10k in February 2008, and Citi's certifications were entirely appropriate." The New York-based bank has been facing additional scrutiny since the FCIC documents were unveiled. The bank's problems became evident in November 2007, when it disclosed $8 billion to $11 billion worth of unexpected losses. Those losses were partly due to internal control issues that were too deep to fix with less than two months in the calendar year, Mayo says. Eventually, Citi would be rescued by a $45 billion taxpayer bailout, which it finished repaying in 2010. Although the apparent control issues happened under previous CEO Chuck Prince, the OCC wrote a seven-page letter to current CEO Vikram Pandit in February 2008 outlining its concerns, just eight days before its 10-K was signed. Mayo says Citi's board was "uninformed or misinformed" by management and "appeared not to be engaged" in resolving apparent issues. He questioned whether Citi's board has examined the issue in the intervening time and whether the Securities and Exchange Commission or U.S. Justice Department have scrutinized the matter. Mayo was one of the first analysts to advise investors to sell Citi stock in 2007 and still maintains a sell rating. He has become something of a thorn in management's side by asking tough questions during earnings calls and publicizing a lack of willingness to meet with him as frequently as they do with his peers on Wall Street. >>>Read More:
>To contact the writer of this article, click here: Lauren Tara LaCapra. >To follow the writer on Twitter, go to http://twitter.com/laurenlacapra. >To submit a news tip, send an email to: email@example.com.
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.