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Citigroup Set To Be Heavily Regulated

Apr 27, 2003 | FT.COM

Citigroup will be more heavily regulated than its peers in a $1.4bn settlement of Wall Street conflicts of interest to be announced on Monday. The rules include banning direct contact between Sandy Weill, its chairman, and research staff.

Federal and state regulators are poised to detail the final terms of a $1.4bn settlement of investigations in Washington on Monday. They will also release documents gathered to support allegations of misconduct.

Regulators say the most egregious errors occurred at Citigroup, which will pay the biggest fine and have to live with rules rivals will not be subject to.

These include having senior executives, including Mr Weill, go through compliance officers to speak to anyone in the research department and having the office of Eliot Spitzer, the New York State attorney-general, as a long-term watchdog.

Sallie Krawcheck, who was lured from Sanford C Bernstein to clean up Citigroup's research department, will report to subcommittees of Citigroup's board without any contact with Mr Weill. All senior executives who wish to contact analysts will have to be chaperoned and a record sent to Mr Spitzer's office.

The investment banks are acknowledging the findings without admitting wrongdoing. At least three Citigroup, Credit Suisse First Boston and Merrill Lynch are said to have acted fraudulently. Others will be said to have acted in a dishonest or unethical manner, although these charges, considered rule violations, are civil rather than criminal.

Infractions include failure to supervise, providing positive ratings in return for investment banking work and failure to use the ratings spectrum on stocks for investors. Others involved are Goldman Sachs, Lehman Brothers, Bear Stearns, JP Morgan Chase, Morgan Stanley, UBS Warburg and US Bancorp.


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