Charged with Supervisory Failures Related to Equity Research and Involvement in IPO Roadshows
November 28, 2014 -WASHINGTON–(BUSINESS WIRE)–The Financial Industry Regulatory Authority (FINRA) announced today 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 roadshows promoting IPOs to investors.
“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.”
FINRA found that from January 2005 to February 2014, Citigroup failed to meet its supervisory obligations regarding the potential selective dissemination of non-public research to clients and sales and trading staff. During this period, Citigroup issued approximately 100 internal warnings concerning communications by equity research analysts. However, when Citigroup detected violations involving selective dissemination and client communications, there were lengthy delays before the firm disciplined the research analysts and the disciplinary measures lacked the severity necessary to deter repeat violations of Citigroup policies.
One example of Citigroup’s failure to supervise certain communications by its equity research analysts involved “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 improper communications at these events, Citigroup did not adequately monitor analyst communications or provide analysts with adequate guidance concerning the boundaries of permissible communications. In another example, FINRA found that 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.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, 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 effectively police these risks.”
Cameron Funkhouser, Executive Vice President of FINRA’s Office of Fraud Detection and Market Intelligence, said, “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.”
Moreover, FINRA found that, in 2011, a Citigroup senior equity research analyst assisted two companies in preparing presentations for investment banking roadshows. Between 2011 and 2013, Citigroup did not expressly prohibit equity research analysts from assisting issuers in the preparation of roadshow presentation materials.
In settling this matter, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA’s investigation was conducted by the Department of Enforcement and the Office of Fraud Detection and Market Intelligence.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2013, members of the public used this service to conduct 16.5 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database.
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