Finra fines Citigroup, UBS and Deutsche over bad IPO info

An independent securities industry regulator on Tuesday announced fines totaling $425,000 against three Wall Street firms over supervisors’ alleged failures to prevent customers from getting faulty information about a 2006 initial public offering.

The firms — Citigroup Global Markets, UBS Securities and Deutsche Bank Securities — also were ordered to pay as much as $420,000 in restitution to customers who were mistakenly told they hadn’t received share allocations in Vonage Holdings Corp., which provides an Internet-based phone service.

The Washington-based Financial Industry Regulatory Authority said none of the three firms admitted or denied the allegations, but consented to FINRA’s findings.

The companies were lead underwriters for the Vonage IPO, which included selling about 4.2 million shares to Vonage customers through accounts the customers had opened at the firms. Because of the large number of so-called directed share program participants, Vonage and the underwriting firms agreed to have an outside company design and run a Web site to handle customer IPO communications.

FINRA found that the outside company made mistakes that caused some customers to be told they hadn’t received share allocations in the IPO, when in fact they had. The underwriting firms failed to promptly respond to the problem, FINRA said.

By the time come customers learned several days later that they had been allocated stock, the price of Vonage shares “had declined significantly from their initial IPO price,” FINRA said. “Nevertheless, those customers were required to pay the higher IPO price for their shares and incurred losses when they later sold those shares.”

It took months for the underwriting firms to learn the problem’s cause, and they weren’t initially able to determine how many customers received the bad information, FINRA said.

The restitution payments will compensate customers for the difference between the $17 per share IPO price they paid and the lower price of Vonage stock at the time they learned that they had been allocated shares.

Citigroup was fined $175,000 and ordered to pay up to $250,000 to 284 potentially eligible customers; UBS was fined $150,000 and ordered to pay up to $118,000 to 126 potentially eligible customers; and, Deutsche Bank was fined $100,000 and ordered to pay up to $52,000 to 59 potentially eligible customers.

Related Topics: Citigroup Inc., Financial Industry Regulatory Authority, UBS AG