Citigroup Global Markets Inc
Citigroup Global Markets Inc (CRD No. 7059)
CGMI has been a FINRA member since 1936. It provides investments banking, asset
management, brokerage, securities trading, advisory, and other financial services to
customers. The firm currently employs approximately 7,000 registered representatives at
its headquarters in New York and across its 736 branch offices.
On June 16, 2006, the firm executed AWC No. 2005000792101, in which the NASD
found that, from July 2002 to May 2005, the firm, among other things, failed to make
various disclosures required by NASD Rule 2711(h) in certain types of published
research reports, and failed to establish and maintain a supervisory system reasonably
designed to detect and prevent violations of NASD Rule 2711(h), in violation of NASD
Rule 3010. The firm consented to a censure, a $350,000 fine, and an undertaking to
perform a comprehensive review of its research disclosures in certain types of published
research reports.
On January 3, 2012, the firm executed AWC 2008012310101, in which FINRA found
that, from at least January 2007 to at least March 2010, the firm failed to comply with
various research rating disclosure requirements, in violation of NASD Rule 2711 and the
Global Research Analyst Settlement. The firm also failed to establish and maintain a
supervisory system reasonably designed to detect that the firm was not populating its
research reports with required disclosures and that it was not complying with certain
undertakings pursuant to the Global Research Analyst Settlement, in violation of NASD
Rule 3010. The firm consented to a censure and a $725,000 fine.
Criminal Activity(s) Reported – Citigroup Global Markets Inc
1. CGMI omitted the manager/co-manager disclosure
NASD Rule 2711 primarily addressed conflicts of interest that arise when research
analysts work for firms that have investment banking or other business relationships with
subject companies or when analysts or firms own securities of subject companies or make
a market in those securities. The rule implemented structural reforms designed to increase
analysts’ independence and further manage conflicts of interest, and required increased
disclosure of conflicts in research reports and public appearances.3 FINRA Rule 2241,
which replaced NASD Rule 2711 in 2015, generally retains the core disclosure
provisions of Rule 2711 and, among other things, broadens the obligations of members to identify and manage research-related conflicts of interest.4 As part of this regulatory
framework, FINRA Rule 2241(c)(4)(C)(i) and its predecessor NASD Rule
2711(h)(2)(A)(ii)(a) require members to disclose in their research reports if the firm, or
an affiliate, managed or co-managed a public offering for a covered issuer in the past 12
months. The disclosure of investment banking and underwriting relationships between
firms and covered issuers is a core component of the rules.5
The required disclosure must be made at the time of publication or distribution of the report.
CGMI used data feeds from a third-party service provider to identify the firm’s role in
transactions for issuers covered by firm research reports. When a firm outsources a
function to a third-party service provider, the firm remains responsible for compliance
with all applicable laws, regulations, and rules regarding the outsourced function. As part
of a reasonably designed supervisory system, a firm has a continuing responsibility to
oversee, supervise, and monitor the third-party service provider’s performance of covered
activities. This requires specific policies and procedures to monitor the third-party service
provider’s compliance with the terms of any agreements and to assess its continued
fitness and ability to perform the outsourced activities.
6
During the relevant period, the firm tested to confirm that the data feeds were operating
properly and that its disclosures matched the data it received from its third-party service
provider. It did not, until mid-2017, test whether the data received from the third-party
service provider were accurate and complete in the first instance. Likewise, until mid2017, the firm did not test the accuracy and completeness of its manager/co-manager
disclosures in the research reports it published by comparing the disclosures against the
public offerings for which the firm or an affiliate acted as manager or co-manager during
this time period.
In 2017, during a compliance review, the firm discovered that the third-party service
provider’s data relating to the manager/co-manager disclosure was sometimes inaccurate.
During testing performed following identification of the issue, the firm discovered that
the vendor data on occasion did not identify the correct entities involved in a relevant
transaction, and on other occasions failed to document a relevant transaction altogether.
Those errors caused CGMI’s systems to not disclose that it was a manager or co-manager
of an equity public offering as required by NASD and FINRA rules.
As a result of the data errors, between November 2012 and November 2017, the firm
omitted approximately 24,800 required manager/co-manager disclosures in 16,850 equity
research reports, which constituted approximately 6.75 percent of all required
manager/co-manager disclosures impacting approximately 4.43 percent of published
equity research reports during this time period. As a result, the firm deprived the
investing public of important information regarding conflicts of interest.
By virtue of the foregoing, CGMI violated NASD Rule 2711(h)(2)(A)(ii)(a) and FINRA
Rules 2241(c)(4)(C)(i) and 2010.
2. CGMI failed to establish and maintain a reasonably designed supervisory system and written procedures to achieve compliance with the manager/comanager disclosure rules
FINRA Rules 3110(a) and (b)(1) and its predecessor NASD Rules 3010(a) and (b)(1)
require that member firms establish and maintain a system, including written procedures,
to supervise the activities of each associated person that is reasonably designed to achieve
compliance with applicable securities laws and regulations, and with applicable NASD
and FINRA rules. NASD Rule 2711(i) required member firms to “adopt and implement
written supervisory procedures reasonably designed to ensure that the firm and its
employees comply with the provisions of this rule.”
As described above, from November 2012 to mid-2017, CGMI did not test the accuracy
and completeness of the third-party service provider data feed it used to populate the
manager/co-manager disclosure. Likewise, the firm did not test the accuracy and
completeness of the manager/co-manager disclosures in its research reports. It was
incumbent upon the firm to take reasonable steps to ensure that the data supporting the
population of its manager/co-manager disclosures was complete and accurate.
Accordingly, the firm failed to establish and maintain a system, including written
procedures, reasonably designed to achieve compliance with the manager/co-manager
disclosure rules, particularly in light of its obligation to supervise the activities of its
third-party service provider and the firm’s prior disciplinary history. By virtue of the
foregoing, CGMI violated NASD Rules 2711(i) and 3010(a) and (b)(1) and FINRA Rules
3110(a) and (b)(1) and 2010.
CREDIT FOR EXTRAORDINARY COOPERATION
In resolving this matter, Enforcement recognizes CGMI’s extraordinary cooperation for:
(1) discovering the omitted disclosures during a planned compliance review, initiating an
internal review prior to detection or intervention by FINRA or another regulator, and selfreporting directly to FINRA staff; (2) promptly correcting the cause of the omitted
disclosures to prevent further omissions; (3) conducting a five-year lookback to
determine the number of omitted disclosures, which required expending significant staff
time to manually review voluminous transaction and disclosure data; (4) voluntarily
employing corrective measures, such as changing vendors, revising its supervisory
systems, and implementing automated testing with periodic manual checks; and (5)
providing substantial assistance to FINRA’s investigation by maintaining an open
dialogue with FINRA staff regarding improvements to supervisory systems, procedures,
and controls, meeting with staff to explain how disclosures were applied to research
reports, the particular issues with the vendor data that caused the omitted disclosures, and
how the change in vendors and processes remediated the disclosure omissions, and by
sharing the results of its five-year lookback periodically and at its conclusion.
Can you expose the broker trying to trick you?
FINRA offers the free web tool BrokerCheck, which allows users to check a broker’s credentials, registration, and employment history. The disclosure part of BrokerCheck includes information on client conflicts, disciplinary proceedings, and specific financial and legal issues on the broker’s record.
Penalties And Sanctions
•A censure;
• A $475,000 fine; and
• Within 180 days of Notice of Acceptance of this AWC, or such additional period as agreed to by a FINRA staff member in writing, a registered principal on behalf of the firm shall submit to Edwin Aradi, Senior Counsel, FINRA, at the address set forth below, a written certification that: (i) the firm has completed a review of its systems and written procedures regarding the supervision of disclosures in research reports; and (ii) as of the date of the certification, the firm’s systems and written procedures are reasonably
designed to achieve compliance with the applicable securities laws, regulations, and FINRA rules cited herein, including FINRA Rule 2241. The certification shall describe with specificity the actions taken by CGMI.
Respondent agrees to pay the monetary sanction upon notice that this AWC has been
accepted and that such payment is due and payable. Respondent has submitted an
Election of Payment form showing the method by which it proposes to pay the fine
imposed.
Respondent specifically and voluntarily waives any right to claim an inability to pay, now
or at any time hereafter, the monetary sanctions imposed in this matter.
Recent Activity(s)Of The Individual/Firm
From November 2012 to November 2017, CGMI omitted approximately 24,800 required
disclosures in 16,850 equity research reports that it was either a manager or co-manager
of a public offering of equity securities for the companies covered in the reports. These
omissions constituted approximately 6.75 percent of required manager/co-manager
disclosures during the five-year period and affected approximately 4.43 percent of
published equity research reports during this time period. By virtue of the foregoing, the
firm violated NASD Rule 2711(h)(2)(A)(ii)(a) and FINRA Rule 2241(c)(4)(C)(i).
1
The firm’s omissions were the result, in part, of CGMI’s failure to establish and maintain
a supervisory system and written supervisory procedures reasonably designed to achieve
compliance with NASD Rule 2711(h)(2)(A)(ii)(a) and FINRA Rule 2241(c)(4)(C)(i). By
virtue of the foregoing, the firm violated NASD Rules 2711(i) and 3010(a) and (b)(1) and
FINRA Rules 3110(a) and (b)(1) and 2010.2
1 FINRA Rule 2241(c)(4)(C)(i) superseded NASD Rule 2711(h)(2)(A)(ii)(a) on December 24, 2015.
2 The supervision provision in NASD Rule 2711(i) was not carried over to FINRA Rule 2241 and was removed effective September 25, 2015. Supervision relating to research analysts and research reports is now governed exclusively by FINRA Rule 3110. See Regulatory Notice 15-30. FINRA Rule 3110 superseded NASD Rule 3010 on December 1, 2014.
3 Order Approving Rule Changes, Release No. 34-45908, 67 FR 34968 (May 10, 2002).
4 Regulatory Notice 15-30. FINRA Rule 2241 became effective in part as of September 25, 2015, and in whole on
December 24, 2015.
5 Notice to Members 02-39.
6 Notice to Members 05-48.
How To Spot A Fraud Finance Advisor (Infographic)
Help For Victims Of Citigroup Global Markets Inc
If you have lost funds because of misrepresentation, unsuitable investment, or unsuitable investment strategy from Citigroup Global Markets Inc. Then you can take legal action and get justice. Fraud, Malpractice & dereliction of duty should not be taken lightly, especially in this industry. We highly suggest that you notify authorities or seek legal action if your financial advisor or brokerage firm fails to abide by FINRA’s rules are regulations.
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Financial advisors are regulatory & legally obligated to suggest (recommend) the most suitable investments/investment strategies to their clients. Their suggestions should have their client’s best interests and should be appropriate for their client’s goals and needs. Similarly, the brokerage firm which hires financial advisors also has a regulatory & legal obligation to keep a close watch and supervise their Financial Advisors’ practices & behavior. They need to make sure that the financial advisor is not being manipulative or having an unreasonable bias towards certain investments. If the financial advisor and/or the brokerage firm breaches these duties, then the client/customer may be entitled to a full or partial recovery of their losses.
Financial advisors need to have the interest of their clients when giving suggestions related to investments and investment strategies. Reasonable basis suitability requires the advisor to do their best to analyze & identify the risks and rewards associated with their suggested investment and/or investment strategy.
