Citigroup Inc. said Monday that the Securities and Exchange Commission and a U.S. attorney are investigating the company’s Smith Barney mutual-fund unit.
Citigroup said in its annual report filed the investigations involved “the arrangements under which we became the transfer agent for many of the mutual funds in the Smith Barney fund complex.”
As part of that investigation, as well as other industrywide probes of mutual funds, Citigroup said it has received subpoenas and other requests for information from various government regulatory bodies. Citigroup said that regulators have told the company to provide information about issues including market-timing, fees and its mutual-fund sales practices, as well as other issues.
The financial-services holding company said it’s cooperating fully with the regulators’ inquiries. It didn’t specify which U.S. attorney’s office is investigating the company.
Starting last fall, many financial-services companies reported receiving subpoenas and requests for information from the SEC and New York and Massachusetts regulators. They are conducting broad investigations of improper mutual-fund trading practices, including late trading and market-timing activities. In previous quarterly filings with the SEC, Citigroup hadn’t disclosed the regulatory inquiries.
Late trading is prohibited by law as it allows preferred investors to buy fund shares at the 4 p.m. EST closing price after the market closes, while other investors can receive that price only if they buy before the close.
Market-timing, which is the rapid trading of fund shares designed to take advantage of short-term discrepancies between a fund’s share price and its underlying holdings, isn’t necessarily illegal. But regulators say that if mutual-fund companies with antitiming rules permitted such trades while profiting from those arrangements, that could be a violation of securities laws.
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