Finra has hit
Citigroup Global Markets Inc. with a $1.5 million in sanctions allegedly for failing to supervise a broker who scammed investors out of more than $60 million held in
trust funds for upkeep of cemeteries or burial plots.
“Firms have a duty to protect customer funds by taking prompt and meaningful action when they encounter indications of possible fraud or misappropriation,” said James S. Shorris, executive director of enforcement at the
Financial Industry Regulatory Authority Inc. “That duty is particularly critical when firms handle
trust funds where the beneficiaries may be unsophisticated investors who are unaware of how the funds are being handled.”
Citigroup Global Markets neither admitted nor denied the charges, but consented to the entry of Finra's findings.
The $1.5 million sanction represents a $750,000 fine and disgorgement of $750,000 in commissions, which is being returned to cemetery trusts in Michigan and Tennessee.
Finra found that from September 2004 through October 2006
Citigroup Global Markets broker Mark Singer engaged in an elaborate scheme to help two cemetery owners from Michigan open Citibank accounts and then effect improper transfers to third parties. Some of the transfers were disguised as fictitious investments made on behalf of the cemeteries, Finra said in its findings.
Finra did not state how much money was allegedly siphoned from the funds, but various lawsuits put the number at $60 million.
According to statement from Finra, one of Mr. Singer’s alleged conspirators, Clayton Smart, purchased two Michigan cemeteries from another party to the scheme, Craig Bush, using money stolen from the
trust funds. Mr. Smart used
trust fund money to buy more cemeteries in Tennessee. Mr. Smart faces criminal charges in both states. Mr. Bush has been named in civil suits.
Finra’s investigation showed that, over a period of more than two years,
Citigroup failed to adequately supervise Mr. Singer, even after the company received a whistleblower letter alleging misconduct by Mr. Singer in connection with the handling of the cemetery trusts. Despite the allegations by the whistleblower — and other red flags — Finra says
Citigroup failed to strengthen its supervision of Mr. Singer or restrict his activities.
