The Financial Industry Regulatory Authority this week fined Citigroup Global Markets $15 million for failing to adequately supervise communications between its equity research analysts and its clients and Citigroup sales and trading staff.

According to FINRA, Citigroup failed to meet its supervisory obligations regarding the potential selective dissemination of non-public research to clients and sales and trading staff from 2005 to 2014. During this period, Citigroup issued approximately 100 internal warnings concerning communications by equity research analysts.

When Citigroup detected violations involving selective dissemination and client communications, however, a lengthy period of time passed before the firm disciplined the research analysts. Furthermore, disciplinary measures lacked the severity necessary to deter repeat violations of Citigroup policies, FINRA stated. 

One example of Citigroup’s failure to supervise certain communications by its equity research analysts involved “idea dinners” hosted by Citigroup equity research analysts that were also attended by some of Citigroup’s institutional clients and sales and trading personnel. At these dinners, Citigroup research analysts discussed stock picks, which in some instances were inconsistent with the analysts’ published research. Despite the risk of improper communications at these events, Citigroup did not adequately monitor analyst communications or provide analysts with adequate guidance concerning the boundaries of permissible communications.

“The frequent interactions between Citigroup analysts and clients at events like ‘idea dinners’ created a heightened risk that views inconsistent with research would selectively be disclosed to clients,” Brad Bennett, FINRA’s Chief of Enforcement, said in a statement. “Citigroup failed to effectively police these risks.” 

Moreover, FINRA found that a Citigroup senior equity research analyst assisted two companies in preparing presentations for investment banking road shows. Between 2011 and 2013, Citigroup did not expressly prohibit equity research analysts from assisting issuers in the preparation of road show presentation materials.

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

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