The Financial Industry Regulatory Authority (Finra) has fined Citigroup Global Markets Inc. $500,000 for failing to supervise one of the firm's employees who stole an estimated $750,000 from customers.
The employee Tamara Moon, a former registered sales assistant at the firm's Palo Alto, California office, was indicted in June by a federal grand jury in San Francisco on six counts of mail fraud.
According to the indictment, handed down June 23, Moon, 43, of Fremont, operated a scheme through which she stole from more than 20 Citigroup clients by falsifying accounts, forging client signatures, creating fake letters of authorization to divert client funds and making unauthorized trades in client accounts.
The indictment says Moon used the stolen proceeds to remodel her home, to pay mortgages on properties she owned, to pay her credit card bills, to pay down her personal home equity line of credit and to invest in real estate, according to court documents.
If convicted, Moon could face 20 years in prison, a $250,000 fine, three years of supervised release and restitution to clients. Finra last August barred Moon from the securities industry for her actions. It is also continuing to investigate other individuals who oversaw Moon.
According to Finra, Moon took advantage of Citigroup's supervisory lapses at the branch and targeted elderly, ill or otherwise vulnerable customers whom she believed were unable to monitor their accounts.
Finra determined that Citigroup's review of customer account records was
deficient and prevented the firm from detecting red flags concerning
Citigroup neither admitted nor denied the charges, but consented to the entry of Finra's findings. Last year Citigroup agreed to repay the defrauded clients.
Finra found that Citigroup failed to detect or investigate a series of "red flags" that upon further inquiry should have alerted the firm to Moon's improper use of customer funds. The red flags included exception reports highlighting conflicting information in new account applications and customer account records reflecting suspicious transfers of funds between unrelated accounts.
Citigroup, says Finra, also failed to implement reasonable systems and controls regarding the supervisory review of customer accounts, thus enabling Moon to falsify new account applications and other records.
"Tamara Moon used her knowledge of Citigroup's lax supervisory practices at the branch to take advantage of some of the firm's most vulnerable customers, including the elderly," said Brad Bennett, executive vice president and chief of enforcement for Finra. "Citigroup had reason to know what she was doing and could have stopped her."
In one incident, Moon misappropriated nearly $80,000 from an elderly widow's account. An exception report highlighted two address discrepancies in the customer's account documents where the street address did not correspond to the city and zip code provided for the address and the telephone prefix did not match the zip code of the address.
Moon, who had entered the account information, attempted to explain to Citigroup that the discrepancies arose because the client had moved to Arizona, an explanation that did not seem reasonable. Nonetheless, Citigroup accepted Moon's explanation without further inquiry, thus enabling Moon to continue her misappropriation of customer funds.
In another instance, Moon created an account in the name of a deceased customer even after Citigroup had been notified that the customer was deceased. Moon then created a fraudulent account in the name of the deceased customer's widow.
Moon transferred $10,440 from the deceased customer's fraudulent account to the widow's fraudulent account. A few weeks later, Moon had checks drawn for $5,000 and $2,500 on the fraudulent account in the widow's name and deposited in Moon's personal bank account.
In another incident, Moon transferred $150,000 from an account held by a customer to a fraudulent account Moon created in her father's name. Two days later, Moon transferred $90,000 from the fraudulent account in her father's name to an account Moon controlled.