By Alexandra Scaggs and Angela Chen
The Financial Industry Regulatory Authority fined Citigroup Inc.
$15 million for failing to prevent its equity-research staff from
committing communications breaches related to nonpublic
information.
The settlement is the fourth research-related settlement since
the beginning of 2012 for Citigroup. The bank neither admitted nor
denied the charges, but consented to Finra's findings.
The fine is the biggest in more than a decade for Finra, the
industry-funded regulator said.
According to Finra's release Monday, Citigroup from January 2005
to this past February issued about 100 internal warnings regarding
communications by equity-research analysts. During this time,
analysts hosted "idea dinners" attended by clients and sales and
trading personnel where they discussed stock picks that were at
times inconsistent with published research, said Finra.
Such idea dinners, which continue at Citigroup and other banks,
aren't necessarily an issue, but regulators have grown concerned
about discussions at the sessions in conflict with analysts'
published research.
In Oct. 2013, Citigroup paid $30 million in a case brought by
Secretary of the Commonwealth of Massachusetts William Galvin, one
of the biggest fines for improper research practices in years,
after investigators said an analyst leaked negative information
about Apple Inc. and a supplier to four big investment firms before
it was released to the public.
The previous year, the bank was fined for improperly disclosing
confidential information about Facebook's initial public offering.
It also faced a smaller Finra fine over failures to disclose
investment-banking relationships, analysts' stock ownership and
other information.
On Monday, Finra also said a senior Citi analyst in 2011 helped
two companies prepare presentations for investment-banking
roadshows, thus participating indirectly in efforts to promote
initial public offerings to investors. From 2011 to 2013, Citigroup
didn't explicitly prohibit equity analysts from assisting with
these presentation materials.
Finra also cited the bank's issues from 2013, when a Citigroup
analyst selectively gave certain clients information concerning
Apple Inc., which was then selectively disseminated to additional
clients by an equity-sales employee.
"Citi takes its regulatory compliance obligations seriously, and
we believe that we have strong procedures and controls in place to
address the issues that Finra has raised in this matter, and we are
continually working to improve those procedures and controls going
forward," a company representative said.
Despite the warnings it issued, Citigroup delayed disciplining
research analysts, and the disciplinary measures taken weren't
severe enough to deter repeat violations, according to Finra.
"Citigroup did not enforce the boundaries of permissible
communications to ensure that its analysts did not provide certain
clients with improper access to nonpublic research information,"
said Cameron Funkhouser, executive vice president of Finra's Office
of Fraud Detection and Market Intelligence.
Matthias Rieker contributed to this article.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com and Angela
Chen at angela.chen@dowjones.com
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