Articles Posted in Citigroup

Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients
Citigroup Global Markets (C) will pay $18.3M to resolve Securities and Exchange Commission charges accusing the firm of overbilling clients and misplacing client contracts. According to the regulator’s order, at least 60,000 investment advisory clients were overcharged about $18M in unauthorized fees because Citigroup did not confirm the accuracy of the billing rates in its computer systems compared to the fees noted in client contracts and other documents. The firm also purportedly improperly collected fees even when clients suspended their accounts. The SEC says that the billing mistakes took place over a 15-year period.

The regulator also contends that the investment advisory firm has been unable to locate about 83,000 advisory contracts. Their absence made it impossible for Citigroup to correctly validate whether the fees that clients were billed are the same ones that they negotiated.

The SEC believes that affected clients paid Citigroup about $3.2M in excess fees.

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Morgan Stanley Smith Barney (MS) and Citigroup Global Markets (MS) have settled civil charges brought by the US Securities and Exchange Commission accusing the two firms of making misleading and false statements about the CitiFX Alpha, which is a foreign exchange trading program. Without denying or admitting to the regulator’s findings, Morgan Stanley and Citigroup will each pay more than $624K of disgorgement, interest of over $89K, and a $2.25M penalty.

Citigroup’s ownership interest in Morgan Stanley was a 49% stake during the period at issue, from 8/2010 to 11/2011, when the firms’ registered representatives were marketing the CitiFX Alpha to Morgan Stanley customers.

However, according to the regulator, the oral and written representations that these representatives made were based on previous risk metrics and performance. Meantime, they purportedly did not do an adequate enough job of disclosing to investors that the latter could be put into the forex trading program with the use of more leverage than what was promoted, as well as that there would be markups for each trade.

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The 11th U.S. Circuit Court of Appeals said that a lower court made a mistake when it threw out the city of Miami’s claims accusing Bank of America Corp. (BAC), Wells Fargo & Co. (WFC ), and Citigroup Inc. (C) of engaging in predatory mortgage lending to Hispanic and black borrowers. The Florida city brought its claims under the Fair Housing Act.

Miami claims that the three banks directed non-Caucasian borrowers toward more expensive loans that were frequently not affordable to them even if their credit was good. The city said that because of this “reverse redlining,” there were a lot of foreclosures, a rise in spending to fight blight, and lower property tax collections.

A U.S. district court judge threw out Miami’s mortgage lawsuits last year. Judge William Dimitrouleas claimed that the city did not have the standing to sue and the harm alleged was too remote from the conduct of the banks.

The 11th circuit, however, said that standard was too strict. It believes that the banks could have foreseen that there would be attendant harm from such alleged discriminatory practices.
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SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations

According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

The Financial Industry Regulatory Authority says that Citigroup Global Markets Inc. (C) will pay a fine of $1.85 million for not providing best execution in about 22,000 customer transactions of non-convertible preferred securities, as well as for supervisory deficiencies that went on for over three years. Affected customers are to get over $638,000 plus interest.

A firm and its registered persons have to exercise reasonable diligence to make sure that the sale/buying price the customer pays is the most favorable one under market conditions at that time. FINRA says that instead a Citigroup trading desk used a pricing methodology for the securities that failed to properly factor in the securities’ National Best Bid and Offer. Because of this, contends the self-regulatory organization, over 14,800 customer transactions were priced inferior to the NBBO. The SRO also claims that because Citigroup’s BondsDirect system for order execution used a faulty pricing logic, over 7,200 customers transactions were priced at less than NBBO.

FINRA says that Citigroup’s written supervisory procedures and supervisory system related to best execution in these securities were lacking. It claims that the firm did not review customer transactions for the securities at issue, which were either executed manually by the trading desk or on BondsDirect. Such an assessment could have ensured compliance with Citigroup’s best execution duties. (FINRA noted that it had sent the firm inquiry letters about the reviews.)

LavaFlow Inc., a Citigroup (C) business unit, has consented to pay $ 5million to resolve U.S. Securities and Exchange Commission charges that it did not protect subscribers’ confidential trading data in its alternative trading system. LavaFlow consented to the SEC order without denying or admitting to the allegations.

Per the order, which institutes a settled administrative proceeding, LavaFlow, which runs an electronic communications network ATS, let an affiliate that runs a smart order router application to access and utilize confidential data related to non-displayed orders belonging to subscribers. The order router was not within ECN’s operations and LavaFlow lacked the proper procedures and safeguards to protect this confidential information.

Even though LavaFlow only let the affiliate use the confidential data for ECN subscribers that were also order router customers, the firm did not get subscribers’ consented for their confidential data to be used like this. LavaFlow also failed to disclose this use to the SEC.

The Second Circuit appeals court said that District Judge Jed Rakoff abused his discretion when he rejected the $285 million mortgage settlement between the SEC and Citigroup (C). The regulator accused Citigroup of selling sections of Class V Funding III, a $1 billion mortgage-bond deal, without revealing that the bank was betting against $500 million of the assets.

Rakoff, a district court judge, said that he partially blocked the settlement because he didn’t agree with a Commission practice in which the party involved gets to resolve a case without denying or admitting to wrongdoing. Last year the SEC reversed its policy that automatically lets companies settle without making a wrongdoing admission. Now, the regulator is compelling admissions in cases that are especially egregious. Also, following Rakoff’s ruling, other judges followed his lead in a number of lawsuits.

This week, however, the appeals court said that the Commission should be granted wide deference when it is deciding whether or not a case should go to trial or settle. The three-judge panel said the deal between the SEC and Citigroup was in the interest of the public.

The New York Supreme Court has vacated the $11M FINRA arbitration award against Citigroup Global Markets Inc. (C) and one of its employees. The securities case is Citigroup Global Markets Inc. v. Fiorilla.

Judge Charles Ramos vacated the award after determining that the parties had agreed to settle the arbitration case for $800,000 before arbitration. He said that it did not benefit the public interest to honor arbitrations of disputes that were settled before they were arbitrated.

The securities case involves a complaint filed by former legal adviser to the Holy See John Fiorilla. He contended that he turned over approximately $16 million of Royal Bank of Scotland PLC (RBS) stock-an inheritance from his dad-to Smith Barney adviser Robert Loftus. The latter is not a party in this arbitration claim.

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton “Bud” Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

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