FINRA fined Citigroup Global Markets $5.5 million and ordered the firm to pay $6 million to retain customers as compensation for displaying inaccurate research ratings for equity securities, such as displaying "buy" when the actual rating was "sell," which in turn caused brokers to pursue the wrong type of transaction, due to the inaccurate display. FINRA also cited Citigroup for supervisory violations related to the inaccurate research ratings.
For instance, Citigroup in a worst-case opposite day scenario may have erroneously displayed a stock's rating as "buy," indicating that Citigroup anticipated an expected total return of 15% or more (and 25%+ for high-risk stocks), when, instead, the actual rating should have been "sell," which would have indicated a negative expected total return (less than 0%, as in a loss of equity). This illustrative example would have resulted in a broker purchasing shares, only for the stock to lose money, all the while Citigroup's true rating for the stock was, indeed, "sell." Had the displayed rating been proper, the broker would have sold the negative-yield stock at a higher price.
AWC #2016048931101
According to the findings, Citigroup displayed inaccurate research ratings for over 1,800 equity securities from 2011 through 2015, which represents more than 38% of equity securities covered by the firm.
Specifically, FINRA found that the errors prompted the firm to either display the wrong research rating, such as displaying "buy" when the actual rating was "sell" or "neutral" or vice versa (displaying "sell" when the actual rating was "buy" or "neutral," and displaying "neutral" when the actual rating was either "buy" or "sell"), a rating when Citigroup's own research department did not cover the security, or erroneously displaying no rating whatsoever when Citigroup's research department did cover the security and a rating should have been displayed.
Although the research reports themselves were unaffected by the errors, investigators wrote that the firm's failure to display accurate research ratings caused brokers to solicit thousands of transactions inconsistent with the firm's actual ratings.
Investigators discovered that Citigroup supervisors failed to detect and prevent "a substantial number" of transactions conducted in this erroneous fashion, and that the firm provided customers with inaccurate ratings on customer statements as well as online, failing to timely correct the materially inaccurate information despite several red flags that FINRA says should have alerted Citigroup personnel to the fact that the ratings were inaccurate.
FINRA previously fined Citigroup $725,000 for failing to comply with NASD Rule 2711 pertaining to research rating disclosure requirements for the 2017-2010 period. In 2006, NASD (FINRA's predecessor) fined Citigroup $350,000 for failing to disclose required items in over 2,500 published research reports, pursuant to this same Rule 2711. The 2006 fine also included a censure regarding Citigroup's purportedly deficient supervisory system relative to research rating disclosures.
If you have invested with Citigroup Global Markets or with any broker, financial adviser, or firm whose inaccurate and erroneous equity securities research ratings, such as an inaccurate "sell" rating when the firm's research department actually meant to display "buy" (or vice versa), and this materially inaccurate information has led to improper transactions that have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.