Citigroup Fined by Finra Over Short Sale ViolationsAlan Katz
Citigroup Inc.’s brokerage unit agreed to pay $1.1 million to settle regulatory claims it improperly bought shares of companies after having bet against the same stock days earlier.
Citigroup Global Markets Inc. violated Rule 105, which prohibits taking part in a public offering after selling the stock short during a restricted period before the sale is priced, the Financial Industry Regulatory Authority said in a statement today. Citigroup bought shares in five public offerings in 2009 and 2010 after shorting the same stocks within five days of the pricing, according to the statement.
Rule 105 helps prevent short selling that can reduce the proceeds received by companies by depressing the market shortly before public offerings are priced. Firms that violate the rule typically reap illicit profits by buying the shares at an artificially low price, the Securities and Exchange Commission said last year.
“Finra will continue to aggressively monitor firms for adherence to Rule 105’s requirements and adequate supervisory systems to ensure such compliance,” Thomas Gira, Finra’s executive vice president for market regulation, said in the statement.
Finra, the brokerage industry self-regulator, carried out the action jointly with BATS Global Markets, Inc., which operates four stock exchanges. Citigroup’s payments include disgorgement of $538,000 in profits and about $559,000 in fines, Finra said.
“We are pleased to resolve this matter,” Scott Helfman, a Citigroup spokesman, said in an e-mail. In settling the claims, Citigroup didn’t admit or deny the allegations.