Citigroup (NYSE: C), the New York based banking behemoth that has faced a tumultuous four years, has been fined $2 million by Massachusetts regulators today for failing to prevent analysts from illegally leaking confidential information about Facebook’s initial public offering.
The Facebook IPO has attracted a host of criticism since it’s release earlier this year, with allegations made towards many of the nation’s largest banks that they first failed to frame the firm properly and disclose some of their concerns, and then in the immediate aftermath disclosing non-public information that failed to comply with securities laws. The firm’s falling stock price angered many investors who were expecting a one day price pop similar to past IPO’s, no matter who weak the reasoning behind that expectation might have been. Under U.S. securities law, IPO underwriters are not allowed to publish research on a company until 40 days after the IPO date, according to the order issued by William Francis Galvin, the secretary of the commonwealth.
According to Galvin, a junior analyst (who was not specifically named in the report) emailed a document to reporters at TechCrunch.com that outlined confidential details about Citigroup’s outlook for Facebook’s revenue after its IPO. Galvin said “It is essential in these times of rapid and diffuse means of communications that financial institutions be vigilant to ensure that the rules on IPOs are observed by all their personnel so that the integrity of the process is maintained. This penalty should serve as a warning to the industry as a whole.”
An unintended side effect of today’s action could be detrimental to market transparency, and not quite be as beneficial as it initially seems. By fining Citigroup for sharing information with reporters, Galvin’s office could make analysts at investment banks less likely to speak openly with the press. This, in turn, could ultimately hurt investors by limiting their access to unbiased information.
In a statement, Citigroup said it was pleased to have the matter resolved. “We take our internal policies and procedures very seriously and have taken the appropriate actions,” the bank said. Facebook declined to comment.
