agreed to fork over $15 million to settle NASD charges it duped some phone company retirees into making big bets with their pension funds.
The NASD, a Wall Street self-regulatory group, said Citigroup Global Markets agreed to pay a $3 million fine and restore $12.2 million to more than 200 BellSouth retirees. The restitution will be paid through a class-action settlement, the NASD said.
Citi failed to adequately supervise a team of brokers based in Charlotte, N.C., according to the NASD. It alleges that the team used misleading sales materials during dozens of seminars and meetings for the employees of BellSouth. BellSouth was acquired last year by
As a result of the seminars, some 400 BellSouth employees opened 1,100 accounts with Citi brokers. Most of these clients were unsophisticated investors with minimal experience in the financial markets, the NASD said.
The NASD found that the brokers' sales materials and presentation failed to adequately disclose the fees the clients would be paying or that the recommended investments exposed the BellSouth employees to greater market risk.
"The improperly supervised brokers in this case used misleading documents that made exaggerated and unwarranted projections of future earnings without fully explaining the risks involved," said James Shorris, NASD executive vice president and head of enforcement. "Many BellSouth employees gave up secure pensions, believing they could afford to retire early, but ended up losing substantial amounts from their retirement nest eggs. We are pleased that this settlement helps ensure that the injured investors will receive the restitution to which they are entitled."
Three Citi brokers and two managers have been suspended, the NASD said. They received fines totaling $275,000. Neither Citi nor the brokers either admitted or denied responsibility in the NASD action.
"We take this matter very seriously," a Citi spokeswoman said in an emailed statement. "The inappropriate actions of a small group of employees in one office more than five years ago don't reflect the dedication and commitment of the vast majority of financial advisors in Charlotte and elsewhere who work hard for clients each day. The firm is also working on all fronts to prevent a similar situation from occurring again."
Shares of Citi fell 51 cents to $53.39.