The Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Citigroup Global Markets, Inc. $3.5 million for providing inaccurate mortgage performance information, supervisory failures and other violations in connection with subprime residential mortgage-backed securitizations.
Issuers of subprime residential mortgage-backed securitizations are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those in the subprime residential mortgage-backed securitizations being offered to investors. Historical data on mortgage performance is material to investors in assessing the value of subprime residential mortgage-backed securitizations and in determining whether future returns may be disrupted by mortgage holders' failures to make loan payments.
FINRA found that from January 2006 to October 2007, Citigroup posted inaccurate mortgage performance data on its website, where it remained until early May 2012, even though the firm lacked a reasonable basis to believe that this data was accurate. On multiple occasions, Citigroup was informed that the information posted was inaccurate yet failed to correct the data until May 2012. For three subprime or Alt-A securitizations, the firm provided inaccurate mortgage performance data that may have affected investors' assessment of subsequent subprime residential mortgage-backed securitizations.
In addition, Citigroup failed to supervise mortgage-backed securities pricing because it lacked procedures to verify the pricing of these securities and did not sufficiently document the steps taken to assess the reasonableness of traders' prices. Also, Citigroup failed to maintain required books and records. In certain instances, when it re-priced mortgage-backed securities following a margin call, Citigroup failed to maintain a record of the original margin call, document the supervisory approval or demonstrate that the revised price was applied to the same position throughout the firm.
In settling this matter, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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