Citi destroyed tapes, says NY investigator By Francesco Guerrera and Joanna Chung in New York Published: August 1 2008 22:03 | Last updated: August 2 2008 00:39 http://www.ft.com/cms/s/0/f01a0f50-6006-11dd-805e-000077b07658.html Citigroup was on Friday accused of destroying records subpoeaned by Andrew Cuomo, the New York attorney-general, who intends to sue the investment bank for its role in the collapsed auction rate securities market. Citi ârepeatedly and persistently committed fraudâ by misrepresenting auction rate securities as safe and cash-equivalent investments, said David Markowitz, chief of the officeâs Investor Protection Bureau, in a letter sent to the bank on Friday. After receiving a subpoena in mid-April for records under New Yorkâs powerful Martin Act, Citi had âdestroyedâ recordings of related telephone conversations and failed to notify authorities â even though it learnt in mid-June that tapes had been destroyed, the letter claimed. âVerbatim records of the most important witness statements during the most relevant period were therefore destroyed after the issuance and service of the subpoena,â Mr Markowitz said. Mr Cuomoâs office said any settlement with Citi must include the bank buying back retail investorsâ securities at par and paying a âsignificant penaltyâ. Citi on Friday said it was the practice to recycle tapes after a few months but added that the destruction of the tapes related to the securities was an accident. People close to the situation said that Citi had been able to recover information on nine of the 10 tapes that were destroyed. âThe recycling of the tape in question was inadvertent. As soon as we learned of the oversight, we immediately suspended all recycling of tapes and preserved all existing tapes,â the bank said in a statement. It added: âCiti has acted in good faith and in the best interests of our clients both before and since auctions began to fail, and there is simply no basis for claims to the contrary.â Auction rate securities are long-term debt instruments sold by municipalities and other issuers, whose rates are periodically reset at auctions supported by banks. The market collapsed in February as the credit crunch scared away investors. People close to Citi said that since February the bank had provided liquidity to help issuers buy back their securities at par. The allegations came as Citi disclosed in a regulatory filing that the US Securities and Exchange Commission had opened a formal probe into whether federal securities laws had been violated in connection with the sale of the securities. Nearly all the major investment banks are subjects of probes.