The Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets $3.5 million for posting inaccurate mortgage performance data, supervisory failures and other violations connected to subprime RMBS.
RMBS issuers are required to disclose historical performance data for previous deals that have mortgage loans similar to those in the RMBS being offered to buyers. Historical data on mortgage performance is key for investors to assesss the RMBS's value and to know if future returns might be disrupted by mortgage holders' failures to make loan payments.
"Citigroup posted data for its RMBS deals that it should have known was inaccurate; and even after they learned that the data was inaccurate, Citigroup did not correct the problem until years later," said Brad Bennett, FINRA executive vice president and chief of enforcement. "Investors use this data to inform their decisions and in this case, for over six years, investors potentially used faulty data to assess the value of the RMBS."
FINRA found that from January 2006 to October 2007, Citigroup posted inaccurate mortgage performance data on its Web site, where it remained until early May 2012. The bank did not have a reasonable basis to think that this was accurate data.
Several times Citigroup was told that the data posted was not accurate, but it did not correct the data until May 2012. For three subprime or Alt-A RMBS, the firm offered inaccurate mortgage performance data that might have influenced investors' assessment of subsequent RMBS.
The FINRA added that Citigroup did not supervise MBS pricing since it did not have the procedures to verify the pricing of these securities and did not sufficiently document the steps taken to examine the reasonableness of traders' prices. The bank also failed to maintain required books and records. In certain instances, when it re-priced MBS after a margin call, Citigroup did not maintain a record of the original margin call, document the supervisory approval nor demonstrate that the revised price was applied to the same position across the firm.
In settling this matter, Citigroup did not admit nor deny FINRA's charges. However, the bank consented to the entry of FINRA's findings.