The Financial Industry Regulatory Authority says it is fining Citigroup Global Markets, Inc. (C) $15 million for not adequately overseeing communications between clients and equity researchers and trading staff and sales members, as well as for letting one of its analysts indirectly take part in road shows that marketed IPOs to investors.
According to the self-regulatory organization, from 1/05 to 2/14, Citigroup did not satisfy its supervisory duty related to possible selective dissemination involving non-public research to clients and trading and sales teams. Citigroup had put out about 100 internal warnings about equity research analyst communications during this time. Yet, despite detecting violations related to client communications and selective dissemination, notes FINRA, there were long delays before the firm would discipline analysts. Also, contends the regulator, the disciplinary measures were not severe enough to discourage repeat violations.
The SRO reports that “idea dinners” were held, hosted by the equity research analysts at Citigroup, and attended by certain trading and sales personnel, as well as institutional clients. At the dinners, the analysts would talk about stock picks that were sometimes not in alignment with their published research. Even though Citigroup knew there was the risk of improper communications at these gatherings, the firm did not adequately monitor communications or give analysts proper guidance regarding what was considered permissible communications. In another purported instance, an analyst that worked with a Citigroup affiliate in Taiwan gave out research data about Apple Inc. to certain clients. A Citigroup equity sales employee then selectively disseminated the information to other clients.
Also, notes FINRA, in 2011 a Citigroup senior equity research analyst helped two companies prepare presentations for investment banking road shows. During that time and into last year, Citigroup did not prohibit equity research analysts from helping issuers work on materials for road show presentations.
By settling, Citigroup is not denying or admitting to the FINRA charges.
FINRA Fines Citigroup Global Markets Inc. $15 Million for Supervisory Failures Related to Equity Research and Involvement in IPO Roadshows, Stockbroker Fraud Blog, November 24, 2014
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