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November 20, 2001
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SBI, Citibank reach settlement with SEC

The State Bank of India and the New York-based Citibank, in a settlement have agreed to cease violating US federal securities laws without either admitting or denying the Securities and Exchange Commission's allegation.

The US regulator has alleged that the two banks, in 1998, violated securities laws by selling $532 million Indian bonds (in the US) without registering them.

Last week, the Federal Reserve, the Federal Deposit Insurance Corp and the New York State Banking Department fined SBI $7.5 million for alleged unsafe banking practice. The bank did not admit to any wrongdoing, but agreed to pay the fine.

Citibank in a statement said that the settlement "resolves a technical matter" of whether the bonds should be considered bank deposits or securities under US law. Incidentally SEC found them to be securities whose sale should have been registered with the agency.

Citibank sold about $160 million of the Five-year Resurgent India Bonds to at least 5,000 US-based NRIs and to companies owned by them, the SEC said.

It said employees and agents of both SBI and Citibank, in a "widespread and aggressive" campaign, mailed marketing material to about 90,000 Indians and also made unsolicited telephone calls to sell the bonds.

The SEC said SBI, which has offices in New York, Washington, Chicago, Los Angeles and San Jose, California, announced in July 1998 that it hoped to raise over $2 billion in foreign currency worldwide by selling the bonds.

The bank signed agreements with Citibank and other companies to act as brokers to sell the bonds to Indians living in

SEC said the fines resulted from SBI's alleged violations of US banking laws which included reckless engagement in unsafe and unsound practices, failure to keep accurate and complete books and records as well as failure to set up and maintain procedures to comply with the Bank Secrecy Act.

The Act requires US banks and those with operations in the United States to report all transactions exceeding $10,000 to the authorities.

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