Citigroup Fined for Claiming Hedge Funds Customers Were 'Disabled'

Published Aug 10th, 2006
AFP

WASHINGTON (AFP) - Banking giant Citigroup has been fined $1.1 million after dozens of its brokers gained waivers on mutual fund sales charges by falsely claiming their customers were disabled, the NASD securities regulator said.

The NASD said in a statement that the scheme involved over 100 Citigroup brokers and was tied to over 2,000 mutual fund transactions totaling 47 million dollars. The sham deals were conducted between June 2001 and June 2002.

In some cases, according to NASD investigators, brokers at the bank's Citigroup Global Markets Inc. group falsely claimed their customers were disabled individuals when in fact they were hedge funds.

"Its representatives were able to improperly exploit the mutual funds' fee waiver provisions that were specifically reserved for disabled individuals, extending them even to hedge funds," NASD head of enforcement James Shorris said.

The regulator said Citigroup had agreed to pay $715,000 in restitution to the affected mutual fund groups and a further 400,000 for record-keeping and oversight violations.

The probe focused on mutual fund sales charges that can be waived in the event of a customer's death or disability.

"In several instances, Citigroup-registered representatives entered ... waivers for multimillion-dollar mutual fund transactions by hedge funds, making the inexplicable claim that those entities were 'disabled individuals' as defined by the Internal Revenue Service," the NASD said.

The NASD said its probe into other Citigroup brokers was continuing. Hedge funds are privately run investment vehicles.