Cuomo takes action against Citigroup, while ABCP buyers wait in vain

There are many things to admire about the United States, but one of them certainly is the swiftness with which certain questionable commercial activities find themselves under the regulatory microscope. In full view of the public.

In part, this is due to the legions of public office holders and state regulatory bodies that exist south of our border. As well, though, the tolerance for mistakes and/or stupidity is lower in a sense. Although the U.S.A. might be the land of the second chance, you’ll still get a swift kick if you screw up the first one.

That’s why the U.S. justice system ensures that each and every accused white collar criminial does the perp walk. Martha Stewart, Frank Quattrone, Conrad Black, Andrew Fastow, Jeffrey Skilling, the Koz’, etc. You’ve yet to see that in Canada.

This comes to mind today with the news that New York State Attorney General Andrew Cuomo said he intends to bring legal action against Citigroup Inc. (C:NYSE) over their marketing and sales of auction-rate securities. This from the WSJ:

In a letter Friday, Mr. Cuomo’s office indicated it intended to sue Citigroup Global Markets Inc. and Smith Barney under the state’s Martin Act for fraudulent marketing of the securities and for destruction of documents under subpoena.

Mr. Cuomo’s office said a five-month probe found that Citigroup “repeatedly and persistently” made material misrepresentations and omissions in its underwriting, distribution and sale of auction rate securities.

“Citigroup represented that auction-rate securities were safe, liquid, and cash-equivalent securities,” wrote David A. Markowitz, chief of Mr. Cuomo’s Investor Protection Unit. “These representations were false, and had a severe detrimental impact on tens of thousands of Citigroup customers.”

The parallels to the 2007 asset-backed commercial paper scandal here at home are clear. According to many retail and corporate investors, ABCP was marketed as being safe, liquid and equivalent to BAs, with a few extra basis points thrown in. Sounds no different than the auction rate securities situation.

As one NYSE-listed corporate executive recently told me, his treasury team was assured by a Canadian bank dealer money market institutional salesmen that the ABCP assets would be available the next day when they went to cash them in. That turned out to be anything but true.

In the State of New York, Mr. Cuomo believes that warrants a court action. In Canada, the powers that be support indemnities for the intermediaries. As stark a difference as could exist.

That’s code for only one thing: Canada will never see an ABCP perp walk. Despite the fact that each province has a Department of Consumer Affairs that is charged with protecting the public from fradulent product marketing. What’s more, we hear a great deal from some quarters about the need for each Province to have their own local securities regulator. They’ve got the power to look into the marketing of ABCP, as does the federal OFSI Superintendent. Never happened. Power unused is power lost.

I have an idea. If none of the 25 or so Canadian agencies who could have initiated an ABCP investigation want to use their statutory power, let’s put the Toronto Parking Authority in charge of it. They are swift-of-foot, genius business people, and they almost always get their man/woman. The know their Code and they follow it with a relish we’d love to see in our regulatory and consumer protection agencies.

They’d even probably bring the perp walk to Canada.

MRM