Tuesday, July 24, 2007
NYSE Regulation, Inc. announced today it has censured and fined the Smith Barney Division of Citigroup Global Markets Inc. (“CGMI”) for failing to supervise trading of mutual fund shares and variable annuity mutual fund sub-accounts, failing to prevent violative market timing by its brokers, and failing to maintain adequate books and records.
Between January 2000 and September 2003, CGMI failed to adequately supervise its branch offices and certain financial consultants (“FCs”), who engaged in market timing, including the use of deceptive trading practices to conceal their own identities or the identities of their timing customers, as well as their excessive trading. CGMI was on notice that its FCs were engaged in market timing activity that was potentially harmful to the mutual funds and the long-term shareholders, many of whom were also non-timing customers of the firm. While the firm had compliance policies in place, the enforcement of its policies and procedures was ineffective.
Of the $50 million total payment, $35 million in disgorgement and one-half of the $10 million penalty to be paid to NYSE Regulation will be placed in a distribution fund to compensate injured customers of the firm who invested in the affected mutual funds. Five million dollars will be paid to the State of New Jersey regarding a separate regulatory matter arising out of the same conduct.
Here is the decision: Citigroup Global Markets Inc.