NASD fines Citigroup over futures funds sales
08 December 2004 | 5172 views | 0
Citigroup has fallen foul of regulators once again and has been ordered by the National Association of Securities Dealers (NASD) to pay a $275,000 fine plus restitution for violating rules relating to the sale of two managed futures funds.
The NASD has fined Citigroup Global Markets for the violations relating to sales of the Citigroup Diversified Futures Fund and Salomon Smith Barney Diversified 2000 Futures Fund - both of which invest in commodities including futures, options on futures and forward contracts.
In addition to the fine, the regulator also ordered the firm to offer restitution to the 45 customers who invested a total of $203,000 in the futures funds, in individual investments ranging from $2,000 to $20,000.
NASD says the bank made unsuitable recommendations of the funds, failed to maintain required records on its sales to over 8200 investors in the funds and failed to adequately disclose risks in Web site advertising.
From January 2002 to November 2003, Citigroup marketed and sold the products to over 8,200 investors, raising approximately $199 million, with sales and management fees ranging from 8.10% to 10.75%.
In a statement Mary Schapiro, NASD vice chairman, says managed futures are complicated and risky investment products that are unsuitable for many investors: "Commodity trading is speculative. It is volatile. It involves a high degree of leverage. It is typically not well understood by average retail investors. So it is crucial that firms meet their suitability and disclosure obligations when selling these products."
In settling with the NASD, Citigroup neither admitted nor denied the allegations.
The US financial services giant is still under investigated by European regulators for its controversial bond transaction at the beginning of August when it pushed through EUR11 billion of securities in two minutes over the MTS platform before re-entering the market half an hour later and buying them back at cheaper prices.
Furthermore Japanese regulators ordered the group to close its private banking unit in the country in September due to the wide-spread abuse of local financial regulations at the division. Douglas Peterson, of the bank's Japan operations, repeated the group's earlier apology before the parliamentary financial affairs committee this week where he said an aggressive sales environments and a weak culture of compliance and internal controls led to the breaches. Six bank employees in Japan have been fired over the scandal.