Citibank fined over $38m by US markets watchdog

Citibank has been fined more than $38m (£29m) by markets watchdog the US Securities and Exchange Commission (SEC) for abuse in handling American Depositary Receipts (ADRs) to brokers.

The SEC’s investigation into the matter concluded that Citibank had provided US securities that represent foreign shares, or ADRs, to brokers in thousands of transactions prematurely, without informing brokers of how many foreign shares they needed to hold correspondingly.

A statement from the watchdog said such practices had inflated the total number of a foreign issuer’s tradeable securities, which resulted in “abusive practices such as inappropriate short selling and dividend arbitrage that should not have been occurring”.

It added Citibank had today agreed to pay the fine, without admitting or denying the investigation’s findings.

It is the second fine against Citibank by the SEC in recent months, after the bank agreed to pay more than $10m in August to settle two enforcement actions against them involving its books and records, internal accounting controls, and trader supervision.

“Our charges against Citibank are the latest in our ongoing investigative effort to hold accountable Wall Street institutions that participated in an industry-wide fraud,” said Sanjay Wadhwa, senior associate director of the SEC’s New York regional office.

“Our investigation into these practices has revealed that banks and brokerage firms profited while ADR holders were unaware of how the market was being abused.”

A Citigroup spokeswoman said today: “We are pleased to have this matter resolved.”