Citigroup dealt second fine for prospectus lapses

Finra said the firm failed to deliver documents after ETFs were purchased by clients

Dec 15, 2014 @ 10:33 am

By Trevor Hunnicutt

Citigroup was dealt a multimillion-dollar fine for the second time in seven years by Finra for failing to deliver fund prospectuses to clients.

The firm, which has a private-client group and wealth management unit, agreed to pay $3 million after the Financial Industry Regulatory Authority Inc. said it found the firm failed to provide offering documents after more than 1.5 million ETF purchases by clients between 2009 and 2011.

Citigroup reported some — but not all — of the lapses in January 2011.

Those failures occurred even after the firm had been fined $2.25 million in 2007 for similar lapses, and told regulators that year it had shored up its compliance problems.

But Finra, the industry-funded broker-dealer regulator, said Citigroup employees were often manually reviewing exchange websites to verify data about ETFs and entering data into an automated system and then verifying trades to ensure prospectuses would be sent.

Finra said the manual process “resulted in both procedural errors and human errors.”

When a Citigroup supervisor responsible for prospectus delivery left the firm in April 2008, the responsibilities were not reassigned in a way that “clearly defined” responsibility, according to Finra.

Citigroup Global Markets Inc. consented to the penalty without admitting or denying Finra's findings.

"We are pleased to put this matter behind us," said Citi spokesman Scott Helfman, in a statement.

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