Printer Friendly PageSenate PSI Hearing - Citigroup Statement And Excerpted Testimony Highlights
Editor's note: The following testimony excerpts were given by Citigroup personnel on December 11, 2002, before the U.S. Senate Permanent Subcommittee on Investigations, which was investigating matters surrounding the collapse of Enron.
Statement Attributable to Citigroup Spokesperson
Citigroup welcomes the opportunity to resume a discussion of the issues the Subcommittee raised on July 23rd. Our professionals acted at all times in the good faith belief that these transactions complied with existing law and standards. Any suggestion to the contrary is unfair and unfounded.
Having said that, Citigroup would not approve these transactions today. Under a new policy Citigroup initiated in August, no such financings would be approved without meaningful disclosure of its impact on a company’s financial condition. This policy is an important component of Citigroup’s efforts to set a new standard of business conduct for our company and our industry.
Excerpted Highlights from Testimony of Charles O. Prince, CEO of Citigroup’s Global Corporate and Investment Bank (GCIB)
- Enron has indeed been a catalyst for change in our industry… For our part, we want to be at the forefront of change, setting a standard for integrity and professionalism in our industry.
- Let me be clear: I believe that the Citigroup professionals involved with these transactions acted in good faith and understood these transactions to comply with the existing law and prevailing standards of the time. But let me be equally clear: good faith and legal compliance are no longer the issue as far as I’m concerned.
- Even assuming that these transactions were entered into in good faith and were entirely lawful, they do not reflect our standards and they would not happen now, at Citigroup.
- I think it is fair to say that we never anticipated -- no one ever anticipated -- that a financial intermediary would be criticized for the accuracy of the accounting treatment that a Fortune 10 company gave to its transactions with the express approval of a then-highly respected Big Five accounting firm…. we all learned something -- that reliance on public accountants or a company’s widely held excellent reputation has important limits, particularly in the face of corporate malfeasance.
- We have worked diligently to develop new practices and policies reflecting the lessons we’ve learned.
- We concluded following your July 23 hearing, that we needed to act… Accordingly, on August 7, in the absence of industry or regulatory action, Citigroup announced a new transparency policy, saying, in essence, that from that day forward, Citigroup would execute material financing transactions for companies that were not going to be recorded as debt on their balance sheet if - and only if - the company agreed to disclose the net effect of the transaction on its financial condition.
- Under our net effect rule, the transactions at issue in today’s hearing would not and could not have happened unless Enron had made clear, detailed disclosure to investors.
- No structured finance transaction can move forward unless it has been submitted to a rigorous examination process. We are now preparing to launch a new training program that will be based on our experience so far and informed by the SEC’s new proposed disclosure rules.
- Key decisions, such as whether the policy requires additional disclosure in a particular transaction, are made by senior management from our Accounting Advisory, Legal and Risk Management control functions, acting together. If the senior managers of our control functions do not approve a proposed transaction then, very simply, that transaction will not go forward. Concerns about accounting or similar matters must be fully resolved and documented if a transaction is to go forward.
- I am committed to making sure that our new procedures are fully observed. In order to do that, we are enhancing our decision-making process so that, at every step, decisions are documented and our internal audit group can review and verify compliance with our procedures.
- This new policy has already made a measurable difference in the kinds of deals we are doing or declining to do and in the nature of the disclosure clients are making.
- Our unilateral initiatives do not satisfy the need for a strong, independent accounting profession and for clear regulatory guidance.
- We embrace the SEC’s proposed rules. They are properly directed at public companies and issuers, since the legal disclosure obligation belongs to them, not to financial intermediaries.
- The SEC’s new proposed rules, when finalized, will supersede one objective of our net effect rule -- the one aimed at prodding companies to make better disclosure -- because that role appropriately will be played by the SEC, with the more comprehensive scope and forceful tools that a regulator commands. At the same time, the other objective of our net effect rule -- assuring that we don’t walk into transactions that we would be better off avoiding -- remains fully in force.
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