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August 20, 2018

Citigroup fine for unauthorised trading and inadequate controls set at $10.5m

Citigroup has agreed to pay $10.5m to resolve two cases with the US Securities and Exchange Commission (SEC) regarding books and records violation as well as ineffective controls and trader supervision.

In one case, Citigroup and its US broker-dealer arm Citigroup Global Markets (CGMI) was fined $5.75m.

Why the Citigroup fine?

The allegations concerned three traders who attempted to cover up $81m of losses through mismarking illiquid positions and unauthorised proprietary trading between 2013 and 2016.

SEC also accused CGMI of failing to detect the traders’ misconduct owing to insufficient supervisory procedures as well as failing to verify the valuations of the mismarked positions independently. The concerned traders were later dismissed.

In another case, Citigroup has been fined $4.75m to settle allegations of fraudulent activities at its Mexican subsidiary that resulted in a loss of around $475m.

SEC said that Grupo Financiero Banamex loaned around $3.3bn to Mexican oil services firm Oceanografia (OSA) from 2008 to 2014 based on invoices and work estimates for services that OSA offered to Mexican state-owned oil company Petroleos Mexicanos (Pemex). The regulator found most of these work estimates to be fraudulent.

According to SEC, Citigroup’s Mexican arm lacked the adequate controls to verify the invoices and also ignored the warning signs for detection of the misconduct.

SEC director of New York regional office Marc Berger said: “Today’s charges reflect the Commission’s view that Citigroup fell short of its obligations to supervise its traders and maintain appropriate controls to guard against fraud.

“Citigroup’s lax supervision and weak internal accounting controls allowed a handful of rogue traders to mismark positions over several years and, separately, resulted in the unnecessary loss of hundreds of millions of dollars of its shareholders’ assets to fraud.”

In both the cases, Citigroup agreed to the settlement without admitting or denying the charges.

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