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Monday, September 19, 2011

Former Citigroup Insider Pleads Guilty To Bank Fraud

Gary Foster, a former vice president in Citigroup Inc.'s treasury finance department, on Tuesday pleaded guilty to bank fraud related to his embezzlement of more than $22 million from Citigroup and its customers.

According to the U.S. Attorney's Office for the Eastern District of New York, the Federal Bureau of Investigation's charges against Foster stemmed from fraud he committed against Citi between September 2003 and June 2011.

On June 26, Foster, was arrested by the Federal Bureau of Investigation at John F. Kennedy International Airport, just as he returned from a trip to Bangkok.

"The defendant violated his employer's trust and stole a stunning amount of money over an extended period of time to finance his personal lifestyle," says Loretta E. Lynch, U.S. Attorney for Eastern New York in a statement. "We will vigorously investigate and prosecute such conduct and seek to recover as much of the proceeds as possible."

Shannon Bell, a spokeswoman for Citi, says simply, "We are pleased that Mr. Foster will be held accountable for his crimes."

The Foster case highlights exactly why many institutions face challenges when it comes to detecting internal fraud. "A bank the size of Citi will have significant technological resources deployed against detecting online fraud, but the patterns of internal fraud can often mimic the patterns of everyday activity. This underscores the need for a layered approach to detecting internal fraud, combining internal audit, behavior analytics and periodic background checks. While living a lavish lifestyle isn't a crime, this individual's lifestyle wasn't commensurate with his position, and could've been an early red flag, if anyone had been looking."

Foster was charged with transferring money from various Citi accounts to a Citi cash account. From there, he wired the money to a personal bank account at another bank. He concealed the thefts by making various false accounting entries, making it appear as if the cash account was in balance. He also placed a fake contract or deal number in the reference line of the wire transfer instructions, giving the appearance that the wire transfers were actually in support of an existing Citi contract.

Foster used the money to buy real estate and luxury automobiles, including a Ferrari and a Maserati. In total, the value of the seized and restrained property is estimated to be approximately $16 million. Foster will forfeit the property pursuant to his plea agreement, and now faces a maximum sentence of 30 years' imprisonment.

"Like most employee fraud, using basic monitoring software could have identified the transaction anomalies well before the fraud reached this magnitude. Foster was wiring funds to a personal bank account at another bank, a situation that could have been easily identified if it was being monitored. This particular fraud went on for almost eight years before it was finally identified. How much of this type of fraud is currently happening under the noses of other financial institutions? The answer is, a lot, several billion dollars worth."

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