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FINRA penalizes Citigroup $11 million for telling customers to buy when it meant sell

For nearly five years Citigroup Inc. sent retail customers the wrong research ratings on more than 1,800 stocks, causing many to buy and hold shares they never would have owned.

The Financial Industry Regulatory Authority or FINRA fined Citigroup $5.5 million and ordered it to pay at least $6 million in compensation to retail customers for the ratings errors.

The mistakes occurred between February 2011 and December 2015 and involved more than 38 percent of the equity securities that the New York-based bank covered, FINRA said.

Problems with an electronic data feed caused the ratings errors, FINRA said. Citigroup failed to timely fix the wrongly displayed ratings despite “numerous” red flags.

Citigroup didn’t admit or deny wrongdoing in reaching a settlement with FINRA.

FINRA said the sanctions reflected the bank’s cooperation. Citigroup eventually reported the rating issues and compensated customers.

Brokers solicited thousands of transactions and negligently made inaccurate statements based on wrong ratings, FINRA said. Many retail customers ended up owning stocks with “sell” ratings despite account prohibitions against such ownership, FINRA said.

Citigroup made “materially inaccurate statements and omissions regarding more than 19,000 research ratings on customer account statements, sent more than 1,000 customer email alerts with inaccurate ratings, and displayed inaccurate ratings on online portals available to customers,” FINRA said.

In addition to missing numerous red flags about the ratings inaccuracies, Citigroup also “failed to conduct testing reasonably designed to verify the accuracy of research ratings data that it used and distributed,” FINRA said.

FINRA’s Susan Schroeder said, “Member firms must reasonably ensure that the research rating information that they display and on which they rely to supervise business activities is complete and correct. . . . Even when such inaccuracies are caused by technology problems, firms should react quickly to address those errors.”

FINRA is a private corporation. It acts as Wall Street’s independent regulator and is overseen by the SEC.


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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