The Financial Industry Regulatory Authority (FINRA) imposed a $15 million fine against Citigroup Inc (NYSE:C) for failing to supervise properly the communications between its equity research analysts and clients regarding non-public research.
The regulator added that the bank allowed its analysts to participate indirectly in two IPO roadshows.
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Citigroup idea dinners
According to FINRA, Citigroup Inc (NYSE:C) failed to meet its supervisory obligations regarding the potential selective distribution of non-public research to clients and sales trading staff from January 2005 to February 2015.
The regulator found that the bank issued approximately 100 internal warnings regarding the communications by its equity research analyst. During this period, the bank’s research analysts hosted “idea dinners,” which were attended by the institutional clients, sales and trading personnel of Citigroup Inc. (NYSE:C).
FINRA said during those dinners, Citigroup’s research analysts discussed stock picks, in some cases were inconsistent with their published research. The regulator emphasized that the bank did not monitor its analysts adequately despite the risk of improper communications during those events. The bank also failed to provide proper guidance regarding the boundaries of permissible communications.
Another incident was the selective dissemination of research information by analyst employed by Citigroup’s affiliate in Taiwan regarding Apple Inc. (NASDAQ:AAPL) to certain clients. Such information was then selectively shared to additional clients by the bank’s equity sales employee.
Brad Bennett, executive vice president and chief of enforcement at FINRA 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.”
Furthermore, FINRA found that a senior equity research analyst of Citigroup Inc (NYSE:C) helped two companies in preparing presentations for investment banking road shows in 2011.
Citigroup’s disciplinary measures lack severity
The regulator pointed out that Citigroup Inc (NYSE:C) delayed its disciplinary actions after detecting the problems committed by its analysts. FINRA said the bank’s disciplinary measures lack the severity necessary to prevent repeat violations.
According to FINRA, Citigroup Inc (NYSE:C) settled the case without admitting or denying the allegations against, but agreed to the entry of the regulator’s findings.