Citigroup to Pay $15M Over Trade Review Flaws

The SEC says a Citigroup unit failed to review thousands of transactions as part of its daily surveillance of trades.
Matthew HellerAugust 19, 2015

A Citigroup unit has agreed to pay $15 million to settle charges that it failed to review thousands of trades for possible insider-trading violations.

The U.S. Securities and Exchange Commission said Wednesday in an administrative order that Citigroup Global Markets’ (CGMI) was required to conduct daily surveillance of its trading in order to prevent the misuse of material, nonpublic information.

That system, however, was compromised over a 10-year period by technological errors that resulted in data being omitted from the electronically generated reports that employees used to review trades by several CGMI trading desks, the SEC said.

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“Today’s high-speed markets require that broker-dealers and investment advisers manage the convergence of technology and compliance,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said in a news release. “Firms must ensure that they have devoted sufficient attention and resources to trade surveillance and other compliance systems.”

Without admitting or denying liability, Citigroup agreed to pay a $15 million fine and hire a consultant to review and recommend improvements to its trade surveillance.

Earlier this week, the bank reached a $180 million settlement with the SEC of charges that CGMI and another unit misled investors about the risks of two hedge funds that ultimately collapsed during the financial crisis.

In the case announced Wednesday, the SEC said CGMI’s monitoring of its trading did not comply with insider-trading laws from 2002 through 2012. In particular, trades executed by its corporate loan desks were not checked to ensure they did not involve the securities of a Citigroup borrower.

“The failure occurred because the [daily surveillance] reports that CGMI personnel used to review trades were missing thousands of trades,” the SEC alleged.

The agency also said Citigroup improperly routed 467,000 transactions on behalf of certain advisory clients to an affiliated market-making firm for execution. As part of the settlement, the bank volunteered to pay the $2.5 million in its profits from these principal trades back to the affected clients, the SEC said.