Citigroup Global Markets Fined $3.5 Million by FINRA

The Financial Industry Regulatory Authority (FINRA) published a news release on their website, May 22, 2012, announcing that it has fined Citigroup Global Markets, Inc. $3.5 million.  This fine was for 'providing inaccurate mortgage performance information, supervisory failures and other violations in connection with subprime residential mortgage-backed securitizations (RMBS).'

FINRA notes in their article that the issuers of RMBS are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors. Historical data on mortgage performance is necessary to investors in assessing the value of RMBS and in determining whether future returns could be disrupted by mortgage holders' failures to make loan payments.

The FINRA press release added that Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Citigroup posted data for its RMBS deals that it should have known was inaccurate; and even after they learned that the data was inaccurate, Citigroup did not correct the problem until years later. Investors use this data to inform their decisions and in this case, for over six years, investors potentially used faulty data to assess the value of the RMBS."

It was noted that Citigroup failed to supervise mortgage-backed securities pricing because it lacked procedures to verify the pricing of these securities and did not sufficiently document the steps taken to assess the reasonableness of traders' prices.  Citigroup also failed to maintain required books and records. In certain instances, when it re-priced mortgage-backed securities following a margin call, Citigroup failed to maintain a record of the original margin call, document the supervisory approval or demonstrate that the revised price was applied to the same position throughout the firm. 

FINRA wrote that 'from January 2006 to October 2007, Citigroup posted inaccurate mortgage performance data on its website, where it remained until early May 2012, even though the firm lacked a reasonable basis to believe that this data was accurate.' Also on multiple occasions, Citigroup was informed that the information posted was inaccurate yet failed to correct this data until May 2012. For three subprime or Alt-A securitizations, the firm provided inaccurate mortgage performance data that may have affected investors' assessment of subsequent RMBS. 

In settling this matter, FINRA writes, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings.