Last week, Citigroup Global Markets Inc. said it would pay a $200,000 fine to settle charges by the Securities and Exchange Commission. The charges are connected to Leg Mason Wood Walker Inc’s allegedly improper interference with auction rate securities. Citigroup is LMWW’s merger successor.
According to the SEC, the penalty amount was determined based on LMWW’s willingness to cooperate, the “relatively small share of the auction rate securities markets,” and LMWW’s decision to report the allegedly illegal practices at a later time than did other broker-dealers from an earlier settlement.
During that related case, 15 broker-dealers-Citigroup included-said they would pay penalties of over $13 million related to charges that they participated in violative practices affecting the $200 billion auction rate securities market.
Because Citigroup already is facing a cease and desist order connected to the earlier case, the SEC did not request an order for this case.
The SEC says that auction rate securities are preferred stock or bonds that have dividend yields or interest rates that are reset on a periodic basis via auctions. Institutional investors are the ones that primary participate in this type of market.
LMWW allegedly underwrote and supervised a limited amount of these auctions. The SEC is accusing LMWW of bidding for its proprietary account during these auctions so that there wouldn’t be failed auctions without proper disclosure. As a result, LMWW was able to influence the clearing rate, which determines the interest of yield an issuer has to pay investors until the next auction takes place.
In instances where LMWW lowered the clearing rate, investors were able to get a lower return rate on investments. The SEC says that investors might not have known of the credit risks and liquidity connected with certain securities when LMWW’s actions influenced the clearing rate.
For nearly 20 years, Shepherd Smith and Edwards has represented thousands of investor clients in their claims against hundreds of brokerage firms. Our team of attorneys, legal staff, and consultants jointly have over 100 years experience in the securities industry, which makes us extremely qualified to provide legal representation to clients nationwide in filing claims against financial companies.
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Related Web Resources:
Read the SEC order (PDF)