Citigroup Global Markets Inc. Fined $15 Million by FINRA for Supervisory Failures Regarding Equity Research and IPO Roadshows

FINRA recently announced that it has fined Citigroup Global Markets, Inc. $15 million for failing to adequately supervise communications between its equity research analysts and its clients and Citigroup sales and trading staff, and for permitting one of its analysts to participate indirectly in two road shows promoting IPOs to investors.

“In this case, Citigroup did not enforce the boundaries of permissible communications to ensure that its analysts did not provide certain clients with improper access to non-public research information. Investment banking and research departments are guardians of material, non-public information and have the responsibility to maintain strict control and protection of that information,” said Cameron Funkhouser, Executive Vice President of FINRA’s Office of Fraud Detection and Market Intelligence, in a statement released by FINRA.

From January 2005 to February 2014, Citigroup failed to meet its supervisory obligations related to the potential selective dissemination of non-public research to clients and sales and trading staff, according to FINRA. During this time, Citigroup issued approximately 100 internal warnings concerning communications by equity research analysts. When Citigroup discovered violations regarding selective dissemination and client communications, however, it delayed in disciplining the research analysts and the disciplinary measures were too slight to deter repeat violations of Citigroup policies.

As an example, at “idea dinners” hosted by Citigroup equity research analysts and attended by some of Citigroup’s institutional clients and sales and trading personnel, Citigroup research analysts discussed stock picks, which, in some cases, were inconsistent with the analysts’ published research. Citigroup failed to adequately monitor analyst communications or provide analysts with adequate guidance concerning the parameters of permissible communications, despite the likelihood for improper communications to occur. As another example, an analyst employed by a Citigroup affiliate in Taiwan selectively disseminated research information concerning Apple Inc. to certain clients, which was then selectively disseminated to additional clients by a Citigroup equity sales employee.

“The frequent interactions between Citigroup analysts and clients at events like ‘idea dinners’ created a heightened risk that views inconsistent with research would selectively be disclosed to clients. Citigroup failed to effectively police these risks,” said Brad Bennett, FINRA Executive Vice President and Chief of Enforcement in a statement released by FINRA.

FINRA also found that in 2011, a Citigroup senior equity research analyst assisted two companies in preparing presentations for investment banking road shows. Between 2011 and 2013, Citigroup did not expressly prohibit equity research analysts from assisting issuers in the preparation of road show presentation materials.

In settling the matter, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

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Author: Jeffrey Erez

The founder of Erez Law, Jeffrey Erez, focuses exclusively on securities arbitration and litigation. Mr. Erez passionately believes in representing aggrieved investors and obtaining justice for his clients through litigation.