You will like this!...LOLCitigroup fined $1/2m for bogus gold & silver deals
By: Dorothy Kosich
Posted: '14-SEP-06 07:00' GMT © Mineweb 1997-2006
RENO, NV (Mineweb.com) --The NYSE’s regulatory unit disclosed Wednesday that the largest U.S. bank lost $20 million buying and selling gold and silver in 2002 and 2003 after a rogue trader hid contracts and reported bogus prices.
NYSE Chief Hearing Officer Peggy Kuo imposed a censure penalty and a $500,000 fine on Citigroup Global Markets, for failing to reasonably supervise or control its precious metals trading desk. Citigroup has paid more than $5 billion in legal and regulatory settlements since 2002 for oversight and compliance failures.
Former precious metals trader Gail A. Edmonds carried as much as $373 million in open positions, nearly 75 times her maximum trading limit, before the bank discovered her misconduct in early 2003 and terminated her. At the time, she was Citigroup’s sole precious metals trader in its global markets unit.
The NYSE regulatory group found Edmonds concealed gold and silver forward positions from her employers on at least 135 trade dates from mid-April 2002 to January 8, 2003, obligating Citigroup to deliver 903,300 ounces of gold valued at nearly $310.7 million and 4.3 million ounces of silver with a value of $20.77 million. As a result of Edmonds’ actions, Citigroup overvalued their proprietary and customer physical gold and silver positions from July 2002 through January 2003, according to the investigation.
The bank didn’t discover the irregularities until a year after they occurred, according to NYSE documents.
NYSE Hearing Officer Vincent Murphy censured Edmonds and barred her from the securities industry for four years. Edmonds and Citigroup did not admit nor deny the hearing board’s findings.
The NYSE notified Edmonds in April 11, 2003, that she was under investigation.
The investigation determined that Edmonds concealed short forward transactions, mis-priced gold and silver physical positions, and caused put options to be incorrectly accounted for. The exchange also claimed that Edmonds “caused the firm to create and maintain inaccurate books and records by providing the firm with inaccurate values for gold and silver physical positions, which resulted in the firm assigning inflated values to proprietary, and customer positions, and failing to record transactions she had effected.”
Edmonds had worked as precious metals and forex trader since 1984, first for Shearson Lehman/American Express and subsequently for Salomon Smith Barney (the retail trading arm of Citigroup) when she was terminated in 2003.
Edmonds traded gold and silver bullion, mini-bars and gold coins. While she was authorized to maintain a total $10 million intraday exposure position and overnight positions with a maximum $5 million exposure, the NYSE said her overnight positions steadily increased to $373 million from mid-December 2002 until January 8, 2003.
Meanwhile, Edmonds also entered into numerous gold and silver EFP (exchange for physical trade) transactions, establishing a long physical position and a short forward position. However, she delayed the reporting of the forward contracts transactions, concealing “the significant losses associated with those transactions,” according to NYSE documents.
“As a result of Edmonds’ misconduct, the firm incurred approximately $20 million in trading losses,” the NYSE hearing board determined.
The exchange’s hearing board also found that CGMI “failed to reasonably supervise or control Edmonds and failed to establish a separate system of follow-up and review to supervise its precious metals trading desk.”