| Subject: Citigroup fined $250K in hedge fund case |
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Date Posted: 15:47:48 10/25/04 Mon
Citigroup fined $250K in hedge fund case
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BY SUSAN HARRIGAN
STAFF WRITER
October 25, 2004, 6:21 PM EDT
Regulators Monday fined a unit of Citigroup Inc., the nation's largest financial institution, $250,000 for using what they said was "inappropriate" sales material for hedge funds. The action came at a bad time for Citigroup, which has been struggling to recover from a series of embarrassments.
The National Association of Securities Dealers said the settlement with Citigroup Global Markets Inc., formerly Salomon Smith Barney, was its largest enforcement action yet involving sales of hedge funds by broker-dealers. The national self-regulator said Citigroup advertised target rates of return for the funds without giving customers a way to tell whether those targets were realistic, and also failed to reveal risks.
Barry Goldsmith, the NASD's head of enforcement, said the case "stands for the proposition that when firms we regulate communicate with the investing public" about hedge funds, "they need to provide a sound basis so that investors can evaluate them," as well as disclose the funds' risks.
Citigroup neither admitted nor denied wrongdoing. A spokeswoman, Susan Thomson, said Citi "took immediate action and cooperated fully with the NASD to ensure that all materials comply with current NASD guidance."
The action came on the eve of Tuesday's scheduled vote by the Securities and Exchange Commission on whether to impose new regulations on hedge funds, private investments designed for wealthy investors.
The NASD action also came on a day when Charles Prince, Citigroup's chief executive, bowed deeply and apologized to Japan's top financial regulator for misdeeds that caused Japan to take away Citi's private-banking license. Prince, a lawyer who joined the bank about a year ago, has vowed to clean upCitigroup's image.
But late in the week, the bank revealed that the SEC is considering charges against three employees in relation to a $16 million payment to its mutual funds from an outside vendor.
"They've had so many problems I feel personally that they're not minding the store as well as they should have been,"said Jon Burnham, chairman of Burnham Asset Management Corp. a Manhattan-based money manager that has sold half of its Citigroup stake in recent months and now owns 75,000 shares.
Copyright © 2004, Newsday, Inc. | Article licensing and reprint options
http://www.newsday.com/business/ny-bzciti1026,0,7980202.story?coll=ny-business-headlines
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