Inaccuracy came with an actual price for investment firm Citigroup Inc., as it agrees to pay a total of $11.5 million in fines and restitution for providing flawed data feed to retail customers.
US regulator Financial Industry Regulatory Authority Inc. (FINRA) fined Citi $5.5 million and ordered it to pay at least $6 million in compensatory damages to settle claims that it presented investors inaccurate research ratings for several equity securities.
The settlement also included non-monetary measures designed to ensure the accuracy of credit ratings that the firm will issue in the future.
FINRA said that faults at the company’s brokerage unit affected more than 1,800 securities or 38 percent of the stocks covered by the bank between February 2011 and December 2015.
This action against Citigroup is FINRA’s second within a week. The regulator on Wednesday has charged JPMorgan Chase & Co. for failing to separate customer securities from several countries for over a period of more than eight years until June 2016.
JPMorgan agreed to pay $2.8 million to settle the matter.
Problems with an Electronic Data Feed
The errors occurred due to issues with an electronic data feed presented to a clearing company. Citi failed to fix the incorrect ratings right away despite a number of red flags. Actual research reports and ratings were not affected.
The company was also unable to perform tests to confirm the accuracy of research ratings data that it used and distributed.
FINRA’s Executive Vice President and Head of Enforcement Susan Schroeder stated that even when such inaccuracies stemmed from technological problems, firms must take immediate action to address those faults.
Brokers and employees already reported the errors, but even when they raised their concerns, Citigroup failed to take proper measures and failed to see that the problem was part of a much bigger one.
The flawed data feed had informed investors that some stocks had buy ratings instead of sell and vice versa, making brokers to collect commissions for soliciting transactions that may not have been ordered.
Such transactions breached specific firm-managed portfolio guidelines, in violation of Citi’s prohibitions against securities with sell ratings.
Other cases would also show ratings for businesses it did not cover, while some covered stocks did not have ratings at all.
FINRA said that inaccurate ratings had widespread adverse consequences to customers.
Citigroup has wrongly provided research ratings on client account statements, email alerts, and online portals accessible to customers.
According to the regulator’s findings, the bank made significantly inaccurate reports and errors concerning more than 19,000 research ratings on customer account statements, sent more than 1,000 email alerts with flawed ratings, and showed incorrect evaluations on those online portals.
The New York-based group self-reported the issue to FINRA, created a remediation plan to compensate affected customers and offered substantial assistance to regulators.
Citi said that it was pleased to have resolved the matter, neither acknowledging nor denying any wrongdoing.
However, the industry watchdog stated that the authorities reflected its involvement, including its decisions to report the rating problems and compensate customers.
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