The Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets Inc. $3.5 million for providing inaccurate mortgage performance information, supervisory failures and other violations in connection with subprime residential mortgage-backed securities (RMBS).
FINRA found that from January 2006 to October 2007, Citigroup posted inaccurate mortgage performance data on its website, where it remained until early this month, even though the firm lacked a reasonable basis to believe that this data was accurate. On multiple occasions, Citigroup was informed that the information posted was inaccurate yet failed to correct the data. For three subprime and Alt-A securitizations, the firm provided inaccurate mortgage performance data that may have affected investors' assessment of subsequent RMBS.
In addition, Citigroup failed to supervise mortgage-backed securities pricing because it lacked procedures to verify the pricing of these securities and did not sufficiently document the steps taken to assess the reasonableness of traders' prices. Also, Citigroup failed to maintain required books and records. In certain instances, when it re-priced
mortgage-backed securities following a margin call, Citigroup failed to maintain a record of the original margin call, document the supervisory approval or demonstrate that the revised price was applied to the same position throughout the firm.
‘Citigroup posted data for its RMBS deals that it should have known was inaccurate,’ says Brad Bennett, FINRA executive vice president and chief of enforcement. ‘And even after they learned that the data was inaccurate, Citigroup did not correct the problem until years later. Investors use this data to inform their decisions, and in this case, for over six years, investors potentially used faulty data to assess the value of the RMBS.’
In settling this matter, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings.