December 4, 2008 – 7:55 pm

If you don’t believe the credit crisis is nothing more than a giant churning ponzi scheme, then hopefully this piece from the New York Post will convince. The Citigroup case is a particularly good illustration of the corporate raiding by well-connected corporate insiders who got theirs and got out just in time do dump the black hole of debt on a compliant, distracted population. Witness:

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that’s now choking world banking.

Director Rubin and ousted CEO Prince – and their lieutenants over the past five years – are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted – and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.

WOW. That’s the entire subprime play book! Not much to it, but there doesn’t have to be if the competition is weak. Notice that this is a federal lawsuit, not a federal criminal prosecution. There will never be one of those. The most probable outcome of this suit, is a discussion with some of the plaintiff attorneys about their futures, a fat bag of cash and a lousy out-of-court settlement for individual investors.

The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi’s stock collapsed, wiping out more than $122 billion of shareholder value.

However, Rubin and other top insiders were able to keep Citi shares afloat until they could cash out more than $150 million for themselves in “suspicious” stock sales “calculated to maximize the personal benefits from undisclosed inside information,” the lawsuit said.

The latest troubles for Rubin, Prince and others emerged in a 500-page investigation by Citigroup investors represented by law firm Kirby McInerney.

Yep! McInerney sure seems to be way out in front of federal investigators on this one. We called the SEC for an explanation. They replied that all their manpower was dedicated to surveillance of Martha Stewart and taste testing her new brie. OK, not really, but you do kinda wonder where they are. Or maybe you don’t wonder.

The probe was used to amend and add new details to a blanket investor lawsuit filed against Citigroup a year ago. The amended suit called the actions of Citi leaders “a quasi-Ponzi scheme” to hide troubles – and keep Citi stock afloat while insiders unloaded about 3 million shares between Jan. 1, 2004 and Feb. 22, 2008 for huge profits.

In addition to Citigroup, Rubin and Prince, the complaint names Vice Chairman Lewis Kaden, ex-CFO Sallie Krawcheck and her successor CFO Gary Crittenden.

Rubin cleared $30.6 million on his stock sales, while Prince got $26.5 million, former COO Robert Druskin got nearly $32 million and former Global Wealth Management unit chief Todd Thomson got $25.7 million, the suit said.

Citi denied the allegations and said it “will defend against it vigorously.”

Citi has every right to defend itself as vigorously as it likes. We have no problem with it, but we wish the bank was defending vigorously against federal prosecution instead.

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