The US Financial Industry Regulatory Authority has fined Citigroup Global Markets Inc US$5.5 million and required it to pay at least $6 million in compensation to HNW customers for displaying inaccurate research ratings for numerous equity securities during a five-year period, and for related transgressions.

An equity research rating sums up a firm’s opinion of the future performance of a public security. Citigroup disseminated its research ratings to customers on account statements, email alerts and an online portal. Its brokers and supervisors, meanwhile, relied on internally disseminated research ratings to make recommendations about securities and to monitor the transactions of customers and portfolio allocations.

FINRA found that from February 2011 to December 2015, Citigroup displayed to its brokers, retail customers and supervisors inaccurate research ratings for more than 1,800 equity securities — more than 38% of those it covered. Because of errors in the electronic feed of ratings data that the firm provided to its clearing firm, the firm either displayed the wrong rating for some covered securities (e.g. 'buy' instead of 'sell'), displayed ratings for other securities that Citigroup did not cover or failed to display ratings for securities that Citigroup, in fact, rated. The firm’s actual research reports, which were available to brokers, and the research ratings appearing in those reports, were not affected by these errors.

The inaccuracies in the research ratings feed had widespread, adverse consequences. As a result of the errors, Citigroup brokers solicited thousands of transactions inconsistent with the firm’s actual ratings and negligently made inaccurate statements to customers about those ratings. They also solicited transactions that went against certain firm-managed portfolio guidelines, which were premised on Citigroup research ratings. For example, the portfolios were prohibited from containing equity securities the firm had rated as 'sell.' Because Citigroup brokers relied on inaccurately displayed ratings, many customers’ portfolios improperly included 'sell'-rated securities. Citigroup supervisors, relying on those same inaccurate ratings, failed to detect and prevent many transactions that were actually inconsistent with Citigroup research or portfolio guidelines. The firm also made materially inaccurate statements and omissions regarding more than 19,000 research ratings on customers' account statements, sent more than 1,000 email alerts to customers with inaccurate ratings, and displayed inaccurate ratings on online portals available to customers.

The firm was slow off the mark in correcting the inaccurately displayed ratings, despite numerous intimations that ratings were inaccurate for several securities. The firm was also not good at verifying the accuracy of research ratings data that it used and distributed. The firm told FINRA about the research rating issues on its own initiative, drew up a plan to compensate customers, and helped FINRA in its subsequent investigation; as a result, the regulator has been lenient. In settling the matter, Citigroup neither admitted nor denied the charges.