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FINRA Fines Citigroup Global Markets $3.5 Million for Providing Inaccurate Information Related to Subprime Securitizations

FINRA fined Citigroup Global Markets Inc. (“Citigroup”) for providing inaccurate mortgage performance information, supervisory failures, and other violations relating to its residential mortgage-backed securitizations or RMBS.

According to FINRA, from January 2006 to October 2007 Citigroup posted inaccurate performance data and static pool information on its website.  The inaccurate performance information included RMBS data on delinquencies, bankruptcies, foreclosures, and real estate owned by securitization trusts.  In addition, Citigroup referred to inaccurate static pool information (how prior securitizations similar in collateral content and structure performed) in subsequent subprime and RMBS offerings.  The performance data and static pool data are used to determine the profitability of an RMBS investment and the probability of future returns on an RMBS investment that is currently disrupted as a result of mortgage holders failing to make loan payments as scheduled.  The performance data and static pool information contained material errors that affected investor’s evaluation of the fair market value, yield and anticipated holding period of an RMBS.  On multiple occasions Citigroup was informed that the information posted was inaccurate yet failed to correct the data until May 2012.

During the period of July – September 2007, Citigroup failed to establish and maintain sufficient supervisory policies and procedures addressing independent price verification for mortgage-backed Level 3 CDO’s.  FINRA’s investigation found that on certain occasions, when Citigroup re-priced mortgage-backed securities following a margin call, Citigroup did not maintain records of the original margin calls.

FINRA stated, “Citigroup posted data for its RMBS deals that it should have known was inaccurate; and even after they learned that the data was inaccurate, Citigroup did not correct the problem until years later.  Investors use this data to inform their decisions and in this case, for over six years, investors potentially used faulty data to assess the value of the RMBS.”  Citigroup neither admitted nor denied the charges, but consented to the findings and the fine.