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Citigroup (C) Agrees to $2.9M Fine on Record-Keeping Violation

Citigroup Inc. C has consented to the Securities and Exchange Commission’s (SEC) cease-and-desist order, levying a civil penalty of $2.9 million on the bank. The bank’s broker-dealer unit has been charged for intentionally violating record-keeping requirements with respect to the expenses incurred in its underwriting business.

C neither denied nor admitted the alleged claims of SEC’s findings.

Per federal securities laws, broker-dealers are required to make and maintain books and records that reflect all assets and liabilities. The record-keeping should be done in a way that ensures completeness of the asset-liability position of a business.

Per SEC’s findings, Citigroup’s broker-dealer implemented an unverified method for the calculation of its indirect expenses from at least 2009 through May 2019 in its underwriting business.

It was found that in each deal where Citigroup was engaged as a lead underwriter, it applied a fixed percentage to the underwriting fee to calculate the indirect expense amount. It then used fixed “allocation grids” to divide the indirect expense amount into certain specific expense categories.

These unsubstantiated calculations for indirect expenses were then recorded in the company’s general ledger. Citigroup’s broker-dealer has been also accused for not conducting a review mechanism to verify the reasonableness of the expense calculation method.

The Deputy Director of SEC’s Division of Enforcement, Sanjay Wadhwa stated, “Recordkeeping failures such as these, perpetuated over at least a decade, can undermine the viability of those functions. The SEC will continue to vigorously enforce the books and records provisions of the federal securities laws, which are crucial to well-functioning markets.”

The inception of such proceedings against the company, leads to close supervision by regulatory authorities, thereby increasing its operational challenges.

Citigroup’s shares have lost 19% over the past six months compared with the industry’s decline of 12.1%.

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C presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Financial Misconduct by Other Banks

Wells Fargo & Company WFC agreed to pay a civil penalty of $35 million to settle SEC’s charges. The charges were levied on WFC for overcharging advisory fees of more than $26.8 million in over 10,900 investment advisory accounts.

Some of WFC and its predecessor firms’ financial advisers consented to reduce standard advisory fees for certain clients. These changes were handwritten or typed on the clients’ investment advisory agreements, thus reflecting reduced fees. However, employees in the account processing unit failed to enter reduced advisory fee rates in the company’s billing systems.

UBS Group AG UBS arrived at a settlement with the U.S. Department of Justice to pay $1.44 billion as a penalty to resolve a long-running civil case. The civil action against UBS was filed in 2018, alleging misconduct with regard to underwriting, issuance and sale of residential mortgage-backed securities that were issued in 2006-2007.

UBS said that the entire settlement has been provisioned in prior periods.

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