FINRA announced on November 24th that it fined Citigroup Global Markets, Inc. $15 million for supervisory failure in 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. Department of Enforcement and the Office of Fraud Detection and Market Intelligence conducted this investigation for FINRA.
FINRA Executive Vice President and Chief of Enforcement, Brad Bennett said, “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 successfully police these risks.”
Citigroup’s failure to supervise definite communications by its equity research analysts at “idea dinners” hosted by Citigroup equity research analysts that were also attended by some of Citigroup’s institutional clients and sales and trading personnel. At these dinners, Citigroup research analysts discussed stock picks, which, in some instances, were inconsistent with the analysts’ published research. Despite the risk of inappropriate communications at these events, Citigroup did not effectively monitor analyst communications or provide analysts with adequate management concerning the boundaries of permissible communications.
FINRA found that from January 2005 to February 2014, Citigroup failed to meet its supervisory obligations regarding the potential selective distribution of non-public research to clients and sales and trading staff. During this period, Citigroup issued approximately 100 internal cautions concerning communications by equity research analysts. However, when Citigroup discovered violations involving selective dissemination and client communications, there were lengthy delays before the firm disciplined the research analysts and the disciplinary measures lacked the strictness necessary to deter repeat violations of Citigroup policies.
In 2011, FINRA found that, a Citigroup senior equity research analyst helped two companies in preparing presentations for investment banking road shows. Between 2011 and 2013, Citigroup did not particularly prohibit equity research analysts from assisting issuers in the preparation of road show presentation materials. Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA’s findings, in settling this matter.
For more information, please visit http://www.finra.org/Newsroom/NewsReleases/2014/P601793