One of the largest bank-based brokerage firms failed to make timely financial disclosures about its registered representatives for more than five years, according to FINRA.
Without admitting or denying the findings, Citigroup Global Markets agreed to a fine of $375,000 after investigators alleged the firm ran afoul of Form U4 rules requiring it to disclose 52 unsatisfied tax liens or judgments against 43 reps,
“It is a little surprising that this is happening at a firm like Citigroup,” said Christine Lazaro, director of the Securities Arbitration Clinic at the St. John’s University School of Law. “Financial information is particularly important about brokers, because if a broker is in financial distress that might make them more inclined to engage in misconduct.”
The case follows two other Citigroup settlements with FINRA for a combined $525,000 this year over supervisory matters. Last month, a separate letter of acceptance, waiver and consent resolved a Nasdaq case against the firm for $1.8 million in restitution and a fine, according to BrokerCheck. In 2010, Citigroup also paid $150,000 to settle FINRA’s
New York-based Citigroup is “pleased to have the matter resolved,” spokeswoman Danielle Romero Apsilos said in an emailed statement.
The brokerage has more than 7,000 reps at 700 branches nationwide. Because of the insufficient inquiries to decide whether the garnishment orders involved a disclosable event, Citigroup failed to disclose 19 of the unsatisfied liens or judgments and filed 33 other Form U4 amendments late after an internal review, according to FINRA. Investigators found that the firm’s supervisory system wasn’t “reasonably designed” to report the discloseable events, noting that it didn’t conduct any further inquiries or independent reviews after simply contacting the reps and relying on their view of whether the garnishments warranted disclosures, the settlement shows.
It’s not clear whether any clients suffered losses from reps whose records were clear of the financial disclosures at the time, Lazaro said.
“FINRA does have sanction guidelines,” she said. “My assumption is that FINRA is making a determination that this is more procedural and administrative as opposed to direct customer harm. There’s a reason that this information is disclosed, and part of it is to protect investors.”
The firm “has subsequently revised its supervisory system, including written procedures, to address the deficiencies identified herein,” according to a footnote in the FINRA settlement about the section on Citigroup’s earlier alleged violations of the rules. The brokerage also agreed to a censure as part of the settlement.
In June, Citigroup consented to a censure and a $350,000 fine after FINRA
Finally, in the Nasdaq settlement filed on Nov. 19, Citigroup accepted a censure, a $50,000 fine and restitution of $1.7 million after the regulator accused the firm of running afoul of Nasdaq Options Market rules governing certain trading disclosures and failing to design a supervisory system to avoid violations of the guidelines between February 2019 and July 2021, according to a summary of the case on BrokerCheck.
“Specifically, on Feb. 15, 2019, in order to take advantage of a material news announcement after the 5:30 p.m. exercise cutoff time, the firm submitted a contrary exercise advice without meeting the exceptions set forth in the rule,” the summary shows.
Asked about last month’s settlement, Romero Apsilos said the firm was pleased to have the case resolved as well.
