CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing
Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

The CFTC said that Citigroup traders sometimes worked alone on the spoofing trades and sometimes they worked with each other. The latter involved a trader making the smaller, resting order while the other placed a spoofing trade.

Regarding the purportedly supervisory failures, CFTC said that Citigroup did not provide traders on the US Treasury and Swaps desks enough training about what spoofing involves. The regulator also found that Citigroup did not have the adequate systems and controls in place to detect when traders on these desks were spoofing. When spoofing incidents were identified, US treasury desk members purportedly did not comply with firm policies and report these trading violations.

SEC, FINRA Fine Citigroup and Its Units
The CFTC’s $25M penalty is not the only one that Citigroup has recently had to pay. The US Securities and Exchange Commission recently ordered Citigroup to pay $18.3M to settle charges that the firm overbilled clients and misplaced client contracts. $14.3M of this is a penalty and $3.2M is disgorgement.

The SEC claims that at least 60,000 investment advisory clients paid about $18M in unauthorized fees because the firm failed to confirm that the billing rates in its computer systems were accurate compared to the fees written in client contracts and other documents. In certain cases, improper fees were even purportedly collected from clients whose accounts were suspended.

Also, the Financial Industry Regulatory Authority recently imposed a number of fines against Citigroup. Citigroup Global Markets will pay a $250K fine to settle allegations that the firm did not turn in interest rate reset information for more than 251,000 weekly-reset variable rate demand obligation securities. These should have been submitted to the Municipal Securities Rulemaking Board’s -Term Obligation Rate Transparency System within the mandated time limits.

Citigroup Global Markets also consented to a separate entry of findings made by FINRA accusing the firm of not putting into effect a reasonable supervisory system, or procedures, so that it could make sure that its methodology for confirming trader prices on securities was applied in a consistent manner, firm-wide. As part of that settlement, the firm was fined $850K.

Meantime, Citi International Financial Services, which was previously fined $5.85M related to purported shortcomings involving its anti-money laundering program, agreed to submit within 180 days of submitting its letter of acceptance, waiver, and consent, notice that it had developed and put into effect written procedures, policies, and internal controls to reasonably tackle these specific issues.

Our securities law firm works with institutional investors and high net worth individual investors that have been the victim of fraud. Contact The SSEK Partners Group today.

FINRA Disciplinary Actions, February 2017

Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients, Stockbroker Fraud Blog, January 27, 2017

The CFTC Order in the Citigroup Case (PDF)