The Financial Industry Regulatory Authority, the brokerage industry's self-policing organization, on Monday announced the civil fine against the bank's division Citigroup Global Markets Inc. New York-based Citigroup did not admit or deny FINRA's allegations.
Citigroup failed to supervise and control trading, and to prevent improper internal trades as well as those with some of the bank's trading partners, FINRA said. The transactions in question occurred between 2000 and 2005.
One of the strategies involved a Citigroup unit in New York buying stock from foreign brokerage customers. After some time had elapsed, during which the taxable dividends on the stock were paid out, the stock was sold back to the customers, FINRA said.
When dividends on U.S. company shares are paid to foreign investors, they may be subject to U.S. withholding taxes. Under the Citigroup arrangement, certain foreign customers were deemed to receive a "dividend equivalent" in a swap, not considered to be subject to withholding taxes.
FINRA said that in determining the amount of the fine, it took into account that Citigroup discovered the alleged violations and reported them to the regulators, and that the bank and a law firm it hired to make a review aided FINRA in its investigation.
Citigroup spokesmen didn't immediately return a telephone call seeking comment Monday morning.
Goldman Sachs Group Inc. was fined $600,000 and censured for similar alleged violations in October 2008 by FINRA and the New York Stock Exchange.