The Financial Industry Regulatory Authority (FINRA) on Wednesday slammed CitiGroup Global Markets Inc. (CCGMI) with a $475,000 fine. FINRA accused CitiGroup of failure to divulge complete details of a potential dispute involving around 16,850 equity research reports.
The conflict, according to FINRA, occurred within a period of five years between November and 2012 and November 2017. CitiGroup’s CGMI branch allegedly failed to include approximately 24,800 disclosures necessary in over 16,850 equity research reports.
CGMI, as CitiGroup’s global markets branch, did not indicate whether it was managing or co-managing the equity securities’ public offering. FINRA stated this to be an incomplete or misrepresentation of the companies mentioned in the research reports.
CGMI’s Negligence Charges
CGMI used data feeds from a third-party service provider to establish its role in transactions for issuers in the report. The law holds any outsourcing firm totally accountable for compliance and regulation.
However, during the relevant period, FINRA said that CGMI tested the data feeds to confirm that they were running properly. The firm also ensured that its disclosures matched the data received from its third-party service provider.
However, CGMI did not test whether the data was accurate and complete in the first instance until mid-2017. After the review, the firm discovered that data about the manager and co-manager disclosure was “sometimes inaccurate.”
Due to the errors, the firm excluded approximately 24,800 disclosures in 16,850 equity reports in the said period. This caused around 6.75% omission of all required manager/co-manager disclosures.
The partial disclosures resulted in a 4.43% impact on the published reports during the five-year period. For failure to set up and maintain a supervisory system, CCGI was declared to be negligent.
”As a result, the firm deprived the investing public of important information regarding conflicts of interest.”
CGMI Receives Credit Cooperating With FINRA
Despite the negligence charges, FINRA commended CGMI for its extraordinary cooperation during the investigation.
“Enforcement recognizes CGMI’s extraordinary cooperation for discovering the omitted disclosure during the planned compliance review.”
FINRA further pointed out that CGMI took the initiative to conduct an internal review before law enforcement’s intervention. After that, CGMI self-reported to FINRA staff and proceeded to promptly correct the cause of the disclosure omissions. This was to prevent further data disparities regarding manager and co-manager disclosures in the future.
In related CGMI news, FINRA also charged New York based CGMI with a $1.25 million fine in 2019. The regulatory authority accused the firm of failing to appropriately fingerprint or screen its employees over a seven-year period.
