Did the Ouster of Pandit Violate Securities Laws?

More clarity is emerging over the departure of Vikram Pandit, Citigroup's chief executive, who suddenly announced his resignation two weeks ago when the bank was celebrating a positive earnings report since the financial crisis.

It turns out that Pandit's exit was not his own decision after all and had been in the works for several months

[Read: Why Did Citi's Vikram Pandit Suddenly Quit? to learn more.]

Minutes after celebrating the bank's report of stronger than expected earnings, Pandit 's tenure at the bank since 2007 took a devastating turn, according to the Times.

Pandit --who reportedly thought he was going into a routine meeting with the chairman -- was presented with three options in the form of press releases-- one said that he resigned immediately; another said that he would resign, effective at the end of the year; while a third alternative said that he had been fired without cause.

As today's New York Times reveals, Citi's chairman of the board Michael O'Neill, was "meticulously" building a case for Pandit's ouster by persuading board members to join his cause. During their abrupt encounter, which seems more like an ambush, according to the Times story, O'Neill told Pandit: "The board has lost confidence in you," according to three people cited by the Times.

Pandit apparently chose option No. 1 which was to resign effective immediately. Then board members reportedly confronted John Havens, the bank's COO and ally of Pandit and secured his resignation within five minutes.

Now the question is, does the boardroom intrigue violate rules of corporate governance and/or securities laws? In a CNBC interview today, former SEC Chairman Harvey Pitt, who CEO of Kalorama Partners, told CNBC. This makes a mockery of corporate disclosure requirements. I believe it will be seen as a violation of the federal securities laws."

However, let's not be naive -- this kind of process has gone on in the past, in that corporate board of directors can and do take steps to get rid of a CEO. Some boardroom watchers could conclude this is routine behavior.

However, Citi's shareholders apparently didn't suffer damage from Pandit's forced resignation. So does this warrant any regulatory action?

Pitt insists that the SEC would still be interested on the grounds of corporate disclosure, and in particular the regulator could hone in on O'Neill's statements that Pandit's resignation was voluntary. "He has a lot of explaining to do. The fact that the stock didn't move is not relevant in terms of what the disclosure obligation should have been," said Pitt.

The ex-SEC chairman suggested that the regulator could go after O'Neill for essentially lying to the public about how Pandit's forced resignation went down

According to Pitt, the SEC has a lot of authority including "the power to seek from a court an order that bars any person that violates the security laws and commits what is deemed to be fraud from serving an officer or director of a public company."

Whether or not the SEC pursues a case against the board headed by O'Neill remains to be seen. But the ruthless ouster of Pandit has upset executives that remain within Citigroup, whose support is needed under the new CEO Michael Corbat.

According to the Times story, the new top officials of the bank are circling to retain the support of some crucial executives, including Brian Leach, Citi's chief risk officer and a longtime ally of Mr. Pandit, and James A. Forese, who heads the securities and banking division, according to several people close to the discussions.

While the board successful carried out its plan, it looks like the turmoil behind the boardroom ouster is not over yet.

Here is the CNBC video: