FINRA ordered Citigroup Global Markets, Inc. to pay $1.1 million in connection with illegal short sales effected prior to participating in five public offerings of securities. The $1.1 million sanction includes an order to pay $538,000, plus interest, in disgorgement of profits and other improper financial gains and fines totaling $559,000.
FINRA also ordered Citigroup to update its written supervisory procedures (WSP) to address compliance with Rule 105, which prohibits the aforementioned short sales. FINRA ordered the monetary relief in conjunction with BATS Exchange, Inc., a global operator of securities markets.
FINRA Case #2010022706501 / BATS Exchange Case #2010022706502
According to the findings, Citigroup sold securities short within five business days leading up to those respective securities' public offering pricing and then purchased securities in the corresponding offerings. The investigation uncovered that Citigroup purchased over 1.5 million shares of the relevant offerings after it sold short 313,890 shares of the securities in the days prior to the public offerings.
The alleged misconduct occurred between May 26, 2009 and September 21, 2010 and purportedly involved the following offerings:
> JP Morgan Chase & Co., of which Citigroup sold short 100,000 shares during the restricted period from May 26, 2009 through June 1, 2009. Citigroup allegedly reaped improper financial benefits of $136,850 as a result of the JP Morgan transactions.
> Marshall & Iisley Corporation, of which Citigroup sold short 100,000 shares between June 5, 2009 and June 11, 2009, netting total profits and/or improper benefits of $145,824.
> Assured Guaranty, Ltd., of which Citigroup sold 30,000 shares to the tune of $141,516 in improper financial benefits.
> Cal Dive International, Inc., or DVR, of which Citigroup sold short 60,890 shares during the September 11-17, 2009 restricted period. Total profits/improper financial benefits for DVR reached $61,348.
> Health Care REIT, Inc., a real estate investment trust whose 23,000 shares' short sales activity from September 14-20, 2010 resulted in total profits of $53,088.
FINRA alleges that Citigroup failed to take adequate supervisory stems to ensure compliance with the Securities Exchange Act of 1934's Rule 105 of Regulation M, which prohibits selling short within a designated restricted perior prior to public offering pricing.
Investigators allege that written supervisory procedures were either absent or otherwise inadequate because they did not identify person(s) responsible for supervision, specific steps to be taken by the identified person, statements or descriptions as to how to take such steps and how to document the completion of these steps. As part of the order's terms, FINRA required Citigroup to implement satisfactory WSPs addressing these issues so as to ensure such compliance.
If you have invested with Citigroup Global Markets or with any broker or firm whose engagement in short sales or other conduct in violation of the Securities Exchange Act has proven harmful to your interests or investments, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.