The Securities and Exchange Commission (SEC) fined a Citigroup subsidiary $2.9 million as part of a settlement addressing alleged recordkeeping failures concerning underwriting expenses that occurred for at least a decade.
Citigroup Global Markets, a registered broker-dealer and investment adviser, agreed to pay the civil penalty, cease and desist from further violations, and be censured, the SEC announced in a press release Tuesday.
The details: From at least 2009 through May 2019, Citigroup Global Markets used an unsubstantiated and unverified method to calculate and record indirect expenses associated with its underwriting activities, the SEC alleged in its order.
During the period, the firm did not know the basis for its method of calculation of indirect expenses, including its use of fixed percentages of underwriting fees to calculate indirect expenses per deal, use of expense amount caps, or use of “allocation grids” to divide total indirect expenses into specific categories, per the SEC. The firm relied on its unsubstantiated method for required general ledger reporting.
Further, the firm conducted no review or similar process to verify its method of calculating indirect expenses was reasonable, the SEC alleged.
Compliance considerations: In May 2019, Citigroup Global Markets voluntarily revised its method of calculating indirect expenses associated with its underwriting business, the SEC noted.
Citigroup declined to comment. The firm agreed to the settlement without admitting or denying the SEC’s findings.