NEW YORK (AP) — Citigroup has paid a $ 2 million fine and fired a junior analyst after the employee leaked confidential information about Facebook‘s initial public offering to a popular tech blog.
The charges were brought by the top securities regulator in Massachusetts, who has a history of aggressive enforcement actions against banks. The regulator, Secretary of the Commonwealth William Galvin, announced the charges Friday. Citi agreed to the settlement and admitted to the events detailed in the consent order.
Citi was part of the team of banks that helped underwrite the deal that made Facebook a public company in May. When a bank helps underwrite such a deal, it has information about a company that the broader investing public does not have. The bankers who underwrite the deal are not supposed to act on that information or share it with any favored clients, because it would give them an unfair advantage over the public.
Galvin’s office noted in the order that securities laws required that members of Facebook’s underwriting syndicate “refrain from disseminating written research or other written content about Facebook until 40 days after the IPO.”
The arrangements can also bring accusations of conflicts of interest; banks not only help companies go public or do other deals, they also have units that provide research on the companies. The research is supposed to be impartial, but the banks have a stake in how a company does if it is helping it with underwriting.
According to Galvin’s office, a junior analyst in Citigroup’s San Francisco office was assigned to help research Facebook. On May 2, the junior analyst sent an email to two employees at the technology website TechCrunch.com, with proprietary information about Citigroup’s research on Facebook.
“I am ramping up coverage on FB and thought you guys might like to see how the street is thinking about it (and our estimates),” the junior analyst wrote to two TechCrunch writers. “…This, of course is confidential.”
One of the TechCrunch employees wrote back: “There’s no way I can publish this doc from an anonymous source, right?”
A minute later, the junior analyst replied: “My boss would eat me alive.”
The analyst and the TechCrunch employees were friends, according to Galvin’s office. The junior analyst and one of the employees had gone to Stanford together. According to Galvin’s office, “they keep in touch using social media and all live in the Bay Area.”
Citigroup fired the junior analyst in late September, after Galvin’s office subpoenaed the bank. A subpoena is a request for information and does not necessarily imply wrongdoing.
The bank told Galvin’s office that the junior analyst acted alone. In addition to agreeing to the $ 2 million fine, Citi also agreed to review its policies for overseeing analysts’ communications, and to strengthen compliance training for the analysts.
“We are pleased to have this matter resolved,” Citigroup spokeswoman Sophia Stewart said. “We take our internal policies and procedures very seriously and have taken the appropriate actions.”
Galvin has a long history of suing top players in the banking industry. He was involved in a landmark settlement in 2003 that accused major banks, including Citi’s Salomon Smith Barney unit, of publishing fraudulent research reports about the companies it was working for, and allowing investment bankers working for the companies to influence the opinions of the research analysts covering them.
In the consent order issued Friday, Galvin said the penalty “should serve as a warning to the industry as a whole.”
This is the first penalty that Galvin’s office has issued over the Facebook public offering. A spokesman declined to say if there could be more.
Separately, Galvin’s consent order also implicates the junior analyst’s boss, a senior analyst, for other conduct.
The consent order didn’t name the senior analyst but gives enough information to identify him as Mark Mahaney, Citi’s well-known and influential managing director of Internet research, a frequent commentator to journalists and a person who boosted Citigroup’s research profile.
The consent order does not implicate Mahaney in the Facebook misconduct. But it does say that separately, he sent emails with his private, unpublished opinion about YouTube’s financial results to a reporter at a French business magazine, Capital.
Later, when a communications employee told him he’d need to get approval to talk to the Capital reporter, Mahaney said that he wouldn’t respond to the reporter’s questions even though he already had.
Later, he wrote to the communications employee, “This could get me in trouble. Shoot.”
Citigroup confirmed that Mahaney is no longer at the bank. A source familiar with the matter, who wasn’t allowed to speak on the record about personnel matters, said Mahaney had been fired because he misled the bank about his communications with the French magazine.
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