United States SEC Fines Citigroup $2.9 Million for Using Unverified Method to Calculate & Record Indirect Expenses for Underwriting Fees, Did Not Know Basis of Indirect Expense Calculation Method for 10 Years & No Review Conducted to Verify Method
1st September 2023 | Hong Kong
The United States Securities & Exchange Commission (SEC) has fined Citigroup $2.9 million for using unverified method to calculate and record indirect expenses for underwriting fees, not knowing basis of indirect expense calculation method for 10 years (2009 to 2019) and no review was conducted to verify the method. United States SEC on Citigroup Global Markets: “Recordkeeping requirements of the federal securities laws require broker-dealers to make and keep current certain books and records, including ledgers or other records reflecting all assets and liabilities. The SEC’s order finds that, from at least 2009 through May 2019, CGMI used an unsubstantiated and unverified method to calculate and record indirect expenses associated with its work as an underwriter. According to the SEC’s order, CGMI calculated an indirect expense amount based on a fixed percentage of the underwriting fee for each deal where it was engaged as a lead underwriter and then, using fixed “allocation grids,” divided that amount into specific categories of expenses. The order finds that, upon calculating these indirect expenses through this unsubstantiated method, CGMI recorded the amounts in its general ledger. According to the order, for at least a decade, CGMI did not know the basis of this indirect expense calculation method and conducted no review or similar process to verify that this method was reasonable.” Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement: “Underwriters serve a critical role as gatekeepers in securities offerings. They perform essential functions, including investor protection and also helping companies access capital to grow and innovate. Recordkeeping failures such as these, perpetuated over at least a decade, can undermine the viability of those functions. The SEC will continue to vigorously enforce the books and records provisions of the federal securities laws, which are crucial to well-functioning markets.”
“ United States SEC Fines Citigroup $2.9 Million for Using Unverified Method to Calculate & Record Indirect Expenses for Underwriting Fees, Did Not Know Basis of Indirect Expense Calculation Method for 10 Years & No Review Conducted to Verify Method “
United States SEC Fines Citigroup $2.9 Million for Using Unverified Method to Calculate & Record Indirect Expenses for Underwriting Fees
- SEC Charges Citigroup Global Markets Inc. with Recordkeeping Failures concerning Underwriting Expenses
29th August 2023 – The Securities and Exchange Commission today announced settled cease-and-desist proceedings against broker-dealer Citigroup Global Markets Inc. (CGMI) for willfully violating recordkeeping requirements concerning expenses that the firm incurred in connection with its underwriting business.
Recordkeeping requirements of the federal securities laws require broker-dealers to make and keep current certain books and records, including ledgers or other records reflecting all assets and liabilities. The SEC’s order finds that, from at least 2009 through May 2019, CGMI used an unsubstantiated and unverified method to calculate and record indirect expenses associated with its work as an underwriter. According to the SEC’s order, CGMI calculated an indirect expense amount based on a fixed percentage of the underwriting fee for each deal where it was engaged as a lead underwriter and then, using fixed “allocation grids,” divided that amount into specific categories of expenses. The order finds that, upon calculating these indirect expenses through this unsubstantiated method, CGMI recorded the amounts in its general ledger. According to the order, for at least a decade, CGMI did not know the basis of this indirect expense calculation method and conducted no review or similar process to verify that this method was reasonable.
The SEC’s order charges CGMI with violating Section 17(a) of the Exchange Act and Rule 17a-3 thereunder. Without admitting or denying the SEC’s findings, CGMI consented to a cease-and-desist order, a censure, and a civil penalty of $2.9 million.
The SEC’s investigation was conducted by Chevon Walker, Mala Bartucci, and Lindsay Moilanen of the New York Regional Office, and the SEC Enforcement Division’s Market Abuse Unit, with assistance from the New York Regional Office Broker-Dealer and Exchange Examination Program. It was supervised by Joseph Sansone.
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