The Wall Street Journal reported today that FINRA has fined Citigroup a whopping $725,000 for failures to disclose investment-banking relationships. That’s it? $725,000? We’ve seen slaps on the wrists before (click here and here) but this is hardly a slap (as a slap connotes some level of force). No, when a multi-billion dollar business like Citigroup is fined $725,000, that’s the equivalent of dropping a few pennies out of your pocket while looking for your keys.
Citigroup and other banks are required to submit disclosures of analysts’ stock ownerships and other conflicts in annual reports. In this instance Citigroup omitted those disclosures in over 8% of reports published between 2007 and 2010 – 9,000 in total. It is generally accepted that most of Citigroup’s failures are a result of a technical error and not intentional deceit. However, the nominal penalty FINRA imposed on Citigroup hardly encourages compliance in the future. Worse, it invites occasional deceit that analysts and unscrupulous compliance officials know they can later pass off as a simple “oversight”.
Remember, this is the same bank that packaged and sold distressed securities to its clients without disclosing their true value and then had the nerve to short their own position – an inexcusable action directly adverse to the interests of its clients.
Instead of the window dressing we are getting from FINRA, investors deserve strict and swift action. Substantial sanctions send a message that rules are important and that the public takes regulation seriously. A $725,000 fine hardly sends that message.
Assisted by Zachary A. Kady