
Citigroup fined by NASD for misleading mutual funds
Losses & Lawsuits
The National Association of Securities Dealers (NASD) has fined Citigroup $1.1 million for failing to prevent its brokers from submitting false information to mutual funds.
The regulator fined Citigroup Global Markets $400,000 for supervisory and record-keeping violations in a ploy by more than 100 of its brokers to improperly obtain waivers of mutual fund sales charges, by falsely claiming that their customers were disabled.
The firm was also ordered to pay $715, 000 in restitution to the affected mutual fund entities.
The misconduct was committed from June 2001 through June 2002. So far, NASD has taken disciplinary action against five Citigroup-registered representatives relating to this misconduct, as investigations into other Citigroup brokers continue.
Citigroup was ordered to review its policies, systems, procedures and training relating to Contingent Deferred Sales Charge (CDSC) waivers in mutual fund transactions.
NASD found that Citigroup's electronic order entry system provided an unsupervised method for its representatives to obtain CDSC waivers for customers.
Citigroup failed to develop any exception reports, or otherwise provide for reasonable steps to ensure registered representatives' compliance with the applicable prospectus terms.
While Citigroup issued a Compliance Memo in 1999 to its managers and directors advising that CDSC waivers could not be granted "except in circumstances specified in the fund prospectus", the firm failed to implement policies or procedures reasonably designed to ensure compliance with this directive.
For one year, Citigroup must also provide a quarterly certification to NASD that it has reviewed all CDSC disability waivers granted, has verified that they were appropriately granted (or corrected those waivers that were not appropriately granted), and has retained required supporting documentation.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Market blocked in by volume caps on European DLT regime
Limited scope of pilot project risks holding back issuer and depository participation
SVB opens floodgates on liquidity buffers debate
European regulator says HQLAs should be booked at fair value, but not everyone agrees
SEC cyber rules risk creating web of confusion and costs
Proposals would require breach notifications, public disclosures and annual cyber assessments
Indonesia readies close-out netting after passing P2SK Law
Bankruptcy law changes remove close-out netting obstacles
Top 10 operational risks: The umpire strikes back
Tougher regulatory enforcement, new consumer rules and rise of ESG are ringing alarm bells
Behnam comments fan JSCC hopes for US client clearing
Japan clearing exec welcomes CFTC chair’s pledge to keep discussing OTC clearing status for non-US houses
SVB wouldn’t happen in Europe, says Deutsche CIB head
Campelli also thinks Credit Suisse’s bailed-in AT1 bonds acted as originally intended