By Matthias Rieker
Citigroup Inc. has to pay a $3 million fine for failing to send
prospectuses for exchange-traded funds to more than 250,000
brokerage clients.
The Financial Industry Regulatory Authority Inc. disclosed on
its website Friday that it censured the nation's third-largest bank
by assets earlier this week for failing to deliver prospectuses for
about 160 ETFs from 2009 through April 2011, in more than 1.5
million ETF purchases.
A Citi spokesman didn't immediately return a phone call and
email for comment.
Citi discovered the problem in January 2011 and reported it to
Finra, Wall Street's self-regulator.
Citi, like some other big firms, has repeatedly struggled with
prospectus delivery problems. To check whether prospectuses
actually were sent, the bank relied on a complicated manual system
without a clear chain of supervision, Finra said in its enforcement
action.
In 2007, Citi paid a $2.3 million fine for similar problems.
That fine "put the firm on notice," Finra said.
Another Wall Street bank, Morgan Stanley, recently disclosed a
glitch in its system for delivering prospectuses electronically for
some securities. It offered each affected client the opportunity to
rescind their purchases and get their money back. Last month Morgan
Stanley said it was setting aside $50 million to cover the cost of
that offer.
Write to Matthias Rieker at matthias.rieker@wsj.com
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