This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Citi Accounting Questioned by Mayo

Updated to include Citi comment.

NEW YORK (TheStreet) -- A high-profile analyst suggested on Monday that Citigroup (C) 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: Wall Street Whispers: The Guts To Say 'Sell'

-- Written by Lauren Tara LaCapra in New York.



>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: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs