A broker-dealer affiliate of Citi agreed to pay nearly $8.3 million as part of a settlement with the Financial Industry Regulatory Authority (FINRA) addressing allegations the firm overtendered shares in partial tender offers (PTOs) and received millions in ill-gotten gains.
Citigroup Global Markets was fined $2.5 million and must disgorge approximately $5.8 million in accordance with FINRA’s decision notice published Tuesday. Nearly $2.8 million of the totals will be paid to FINRA, while the remainder will be split evenly between stock exchanges NYSE American and NYSE Arca.
FINRA, a self-regulatory organization, determined not to impose prejudgment interest in the case because the fine and disgorgement together achieved the appropriate deterrence value of equitable disgorgement, it said.
The details: Between November 2017 and August 2022, Citigroup Global Markets overtendered approximately 11.1 million shares in 13 PTOs ranging from 5,798 shares to 4.4 million shares per offering, according to FINRA. The miscalculation was made because the firm calculated the number of shares available for tender on an account-by-account basis rather than a firm-wide basis, as required by the Exchange Act.
FINRA found the firm lacked an adequate supervisory system regarding PTOs. Citigroup Global Markets’ procedures “did not require the firm to determine whether it held any short positions in the security in other accounts, nor did they provide any other means to ensure that the firm would not tender more securities than it was net long,” said FINRA.
Citi declined to comment. The firm neither admitted nor denied FINRA’s findings.
Compliance considerations: Citigroup Global Markets was fined $250,000 by FINRA earlier this month regarding inaccurate trade confirmations to customers. In August, the firm agreed to pay $2.9 million as part of a settlement with the Securities and Exchange Commission addressing alleged recordkeeping failures concerning underwriting expenses.