Wednesday, June 6, 2007
NASD announced today that it has fined Citigroup Global Markets, Inc., $3 million to settle charges relating to the use of misleading materials in retirement seminars and meetings for BellSouth employees in North Carolina and South Carolina. NASD also ordered Citigroup to pay approximately $12.2 million in restitution to more than 200 former BellSouth employees.
Specifically, NASD found that Citigroup failed to adequately supervise a team of brokers based in Charlotte, NC, who used misleading sales materials during dozens of seminars and meetings for hundreds of employees of BellSouth Corporation. As a result of these presentations, more than 400 BellSouth employees opened over 1,100 accounts with the Citigroup brokers. Most of these employees were unsophisticated investors with minimal experience in the financial markets who retired in their mid-50s, well before the BellSouth retirement age of 62. They generally were of modest means, with retirement savings of less than $350,000. These employees typically cashed out their pensions and 401(k) accounts, and invested these proceeds and other retirement assets with the Citigroup brokers.
NASD found that from 1994 to 2002 the brokers conducted more than 40 seminars, without obtaining firm approval for the seminars or seminar sales materials. Following the seminars, they met with BellSouth employees. Using charts, graphs, handouts and other documents at the seminars and meetings, the brokers' sales presentations led the employees to expect that for 30 years they could earn approximately 12 percent annually on their investments and withdraw approximately 9 percent annually.
One document projected the amount a generic 53-year-old BellSouth employee would earn from an initial investment of $300,000. The projection sheet suggested that this typical employee would earn more than $1.8 million, could withdraw from $27,000 to $69,000 annually, and still have more than $770,000 in principal remaining 30 years later, at age 83. During their face-to-face meetings, many employees received a customized version of this document, which projected the amount of money the employee could expect to have after 30 years, based upon the employee's current age, assets and monthly expenses. A broker told one couple: "I'm going to tell you by way of expectations that you should be able to expect 12%. That is not guaranteed, but I feel like good times, bad times, ugly times, beautiful times, we should be able to average 12 . . . We expect to earn 12%. We pay out 9%. … [b]asically, 10 years down the road you are looking at doubling your money. … We may do 15, may do 18 or 20. But good times, bad times, I think that we would do 12%." See Citigroup Global Markets to Pay Over $15 Million to Settle Charges Relating to Misleading Documents and Inadequate Disclosure in Retirement Seminars, Meetings for BellSouth Employees.