It seems more Wall Street settlements are coming (because nobody ever goes to prison for fraud in this country). ProPublica's Jake Bernstein and Jesse Eisinger report that the SEC is investigating Citigroup's role
in a $1 billion deal that the bank created in the run-up to the
financial crisis. The agency is looking at whether Citi improperly
pushed an independent manager to put specific assets into the deal,
according to people familiar with the probe. Of course, we expect that if this is indeed the case, then Citi is currently in negotiations with the SEC to have a settlement ready in hand the second there is a formal announcement.
The deal was a collateralized debt obligation 
named Class V Funding III, which was completed in late February 2007.
The CDO was made up of pieces of other CDOs that were themselves backed
by risky slices of subprime mortgages. The deal was managed by Credit
Suisse Alternative Capital, a division of the Swiss banking giant.
Independent managers such as Credit Suisse were charged with picking the
best assets for the CDO. Citigroup arranged and marketed the deal to
Details on the investigation are sparse. The SEC declined to comment on
the probe. But the SEC has been conducting a wide-ranging investigation
into Wall Street's CDO business, including whether investment banks
created deals in order to dump assets of declining value onto
Among the assets purchased by Class V Funding III were portions of, or
sidebets involving, at least 15 CDOs that the Illinois-based hedge fund
Magnetar helped to create. Four of those CDOs were also underwritten by
Citigroup. In April, ProPublica, together with Chicago Public Radio's "This American Life " and NPR's "Planet Money ," detailed how Magnetar  had helped create more than $40 billion worth of CDOs as part of its strategy to bet against the housing market.
Class V Funding III was cited in another ProPublica-NPR collaboration published  in August. Class V bought a piece of, or had a side bet involving, two other Citi CDOs: Octonion and 888 Tactical .
Those CDOs in turn purchased exposure to Class V. All three CDOs closed
within about two weeks of each other. Such transactions could have
helped investment banks to complete CDOs and earn deal-completion fees.
Citi hedged its exposure to the Class V CDO, persuading bond insurance
company Ambac to insure $500 million of it. Eight months after Class V
was completed, rating agencies downgraded the deal. Earlier this month,
Ambac filed for bankruptcy, largely due to its exposure to CDOs like
Class V Funding III.
It's unclear whether Citi made other trades that would pay off in the
event of a drop in Class V's value. Ultimately, the bank failed to
protect itself against losses from most of the CDOs it invested in;
Citigroup lost almost $34 billion on its mortgage CDO business.
At this point nobody seems to care. There is no risk, there is no punishment for misdeeds of any kind. That is the true new normal.