FINRA on Thursday slammed Citigroup Global Markets with a $5.5 million fine and ordered it to pay at least $6 million in compensation to retail customers for displaying inaccurate research ratings for numerous equity securities during a nearly five-year period.
The regulator blasted the firm for negligently disseminating the inaccurate ratings to brokers and supervisors who relied on them to make security recommendations.
Citigroup either displayed the wrong rating for some covered securities, displayed ratings for other securities that it did not cover or failed to display ratings for securities that it in fact rated, according to the firm's settlement with FINRA.
The inaccurate ratings affected more than 1,800 equity securities, representing more than 38% of those covered by the firm, FINRA found. The inaccuracies occurred from February 2011 through December 2015.
As a result of the errors, Citigroup’s brokers solicited thousands of transactions inconsistent with the firm's actual ratings and made inaccurate statements to customers about those ratings. They also solicited transactions that violated firm-managed portfolio guidelines, which were premised on the firm's research ratings.
"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," Susan Schroeder, FINRA's head of Enforcement, said in a statement.
ELECTRONIC DATA FEED FLAWS
The errors were due to flaws in the electronic data feed Citigroup created and provided to its clearing firm, FINRA said. Citigroup's actual research reports and the research ratings in them, however, were free of errors.
FINRA also scolded the firm for providing inaccurate research ratings on customer account statements, email alerts and online portals available to customers.
Lastly, it faulted the firm for failing to correct the ratings in a timely manner despite numerous red flags alerting it to issues in several securities.
In addition to the $5.5 million fine, Citigroup agreed to pay compensation of at least $6 million to customers who were solicited to buy or sell equity securities affected by the ratings display issues. The firm agreed to the sanctions without admitting or denying the allegations.
"We are pleased to have this matter resolved," Danielle Romero-Apsilos, a spokeswoman for Citigroup, said in an email.
In settling the matter, FINRA factored in the firm's cooperation, noting that it self-reported and established a remediation plan to compensate affected customers.
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