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Citigroup To Undergo More Regulation Than Its Peers

Apr 28, 2003 |

Citigroup will be more heavily regulated than its peers in a $1.4bn (£890m) 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 today. 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 its 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 with a hefty pay deal 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, which are considered to be rule violations, are civil rather than criminal.

Infractions include failure to supervise, providing positive ratings on stocks in return for lucrative investment banking work and failure to use the ratings spectrum when publishing opinions on stocks for investors.

The other investment banks involved are Goldman Sachs, Lehman Brothers, Bear Stearns, JP Morgan Chase, Morgan Stanley, UBS Warburg and US Bancorp. Regulators include attorneys-general from Utah, Massachusetts and other states, the Securities and Exchange Commission, the New York Stock Exchange, and the National Association of Securities Dealers.

Citigroup will pay a total of $400m, the largest fine. Credit Suisse and Merrill Lynch will each pay $200m. Mr Spitzer said in December that the size of each firm's payments was to be determined largely by their relative level of culpability.

Mr Spitzer put a national focus on analyst conflicts of interest in April 2002 when he published e-mails from Henry Blodget and other Merrill Lynch employees privately denigrating companies they touted publicly.

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