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Citigroup Reports Second, Smaller Fraud at Mexico Unit

Citigroup Inc. said it found a second case of fraud at its Mexico unit that’s smaller than the $400 million instance disclosed in February.

The amount involved was less than $30 million, Chief Financial Officer John Gerspach said today on a conference call after the New York-based company reported first-quarter results. Both cases relate to loans made to firms that supply state-owned oil company Petroleos Mexicanos, or Pemex.

Gerspach’s estimate of the size of the smaller fraud grew from last month, when the CFO told a meeting that the bank had found three other “concerns” involving less than $10 million each, according to a report by John McDonald, an analyst at Sanford C. Bernstein & Co., which hosted the event. Gerspach said today the fraud was one of the three he spoke about in March.

“The issues we found to date involve that one program and these two suppliers,” Gerspach said. “There are obviously issues with how that program was being executed.”

Citigroup is investigating the controls at its Mexico unit after the larger fraud led the company to reduce last year’s profit by $235 million. At that time, Chief Executive Officer Michael Corbat called it an isolated incident and a “galling example” of what happens when employees fail to act with the highest ethical standards.

Citigroup expects to recover the full amount of the fraud disclosed today, Gerspach said. The company’s investigation of how the incidents occurred may take some months more, he said.

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