The Financial Industry Regulatory Authority fined Citigroup Global Markets Inc. (CGMI) $5.5 million on Thursday and required the firm to pay at least $6 million in compensation to retail customers for displaying inaccurate research ratings for numerous equity securities.
CGMI displayed inaccurate research ratings for more than 1,800 equities—more than 38 percent of those covered by the firm—to its brokers, retail customers and supervisors from February 2011 through December 2015, according to Finra’s findings.
Because of errors in the electronic ratings feed that the firm provided to its clearing firm, the firm displayed “buy” instead of “sell” ratings for a number of equities, displayed ratings for other securities that CGMI did not cover and failed to display ratings for securities that CGMI, in fact, rated. The firm's actual research reports and ratings appearing in those reports were factually accurate and not affected by these errors.
The inaccurate ratings had widespread, adverse consequences, Finra said. CGMI brokers solicited thousands of transactions inconsistent with the firm's actual ratings and negligently made inaccurate statements to customers about those ratings.
Brokers also solicited transactions that violated certain firm-managed portfolio guidelines, in violation of CGMI prohibitions against securities with “sell” ratings.
"Even when such inaccuracies are caused by technology problems, firms should react quickly to address those errors,” said Susan Schroeder, Finra executive vice president and head of enforcement. “The display and use of incomplete and inaccurate research ratings can have widespread, adverse consequences to customers.”
CGMI self-reported the inaccurate research ratings to Finra, established a remediation plan to compensate affected customers and provided substantial assistance to regulators, Finra said in a statement.
“We are pleased to have the matter resolved,” a CGMI spokeswoman told Financial Advisor.
In total, according to Finra’s findings, the firm made materially inaccurate statements and omissions regarding more than 19,000 research ratings on customer account statements, sent more than 1,000 customer email alerts with inaccurate ratings and displayed inaccurate ratings on online portals available to customers.
CGMI supervisors, relying on those same inaccurate ratings, failed to detect and prevent a substantial number of transactions that were inconsistent with CGMI research or portfolio guidelines, Finra said.