Citigroup Global Markets Inc. a broker-dealer headquartered in New York New York has been censured and fined by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent to findings that it took advantage of customers by overcharging them on mutual fund purchases. Letter of Acceptance Waiver and Consent No. 2016049977601 (Sept. 7, 2018).
According to the AWC, the firm sold various shares of mutual funds that contained different sales charges and fees. Some of those mutual funds contain breakpoint discounts or waivers, which if applied, reduced the cost to invest. Consequently, the various breakpoints, waivers, charges, and fees affected customers’ investment returns.
The AWC revealed that from January 1, 2011 to September 30, 2016, the firm did not adequately supervise the application of sales charge waivers to mutual fund sales when those mutual fund sales were eligible for the waivers. Financial advisors were apparently called upon by Citigroup to identify if the sales charge waivers applied; however, they lacked any guidance from the firm’s procedures or policies for making determinations. The AWC stated that there were no written procedures developed by the firm for detecting the applicability of sales charge waivers that had been identified in mutual fund prospectuses.
The AWC confirmed that the firm only reviewed the application of its sales charge waivers in May of 2016, after FINRA had already launched an examination into the firm’s practices. The firm reportedly stated that two hundred seventy four customer accounts contained a history of mutual fund shares being purchased where a sales charge waiver was not applied. This failure to apply sales charge waivers led customers to be overcharged by $265,844.00. As a result, the firm’s supervision was considered by FINRA to be deficient. FINRA found that the firm’s conduct was violative of FINRA Rules 2010, 3110 and NASD Conduct Rule 3010.
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