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China may diversify dollar reserves into oil, Shanghai paper says
Citigroup to Pay $208 Million to Settle
SEC Fraud Charges Related to a Transfer Agent
By The Associated Press
Tuesday, May 31, 2005
http://biz.yahoo.com/ap/050531/sec_citigroup.html?.v=5
NEW YORK -- Citigroup Inc. has agreed to pay $208 million to settle
fraud charges brought by the Securities and Exchange Commission
against two of the company's units related to the creation and
operation of an affiliated transfer agent that has served the Smith
Barney family of mutual funds since 1999.
The SEC said Tuesday it found that Citigroup Global Markets Inc. and
Smith Barney Fund Management LLC, the investment adviser to the
mutual funds, misrepresented and omitted facts when recommending to
the funds' boards that the funds change from a previous third-party
transfer agent to an agent that was a Citigroup affiliate.
Citigroup was fined $128 million in disgorgement and $80 million in
penalties and was ordered to comply with certain remedial measures,
including a competitive bidding process for certain contracts.
The SEC said that in this case the adviser recommended that the
mutual funds contract with an affiliate of the adviser to serve as
transfer agent, without fully disclosing to the funds' boards that
most of the actual work was to be done under a subcontract with the
funds' existing third-party transfer agent at steeply discounted
rates.
Rather than passing the substantial fee discount on to the mutual
funds, the SEC said, the companies, through the affiliated transfer
agent, took most of the benefit of the discount for themselves,
reaping nearly $100 million in profit at the funds expense over a
five-year period.
In settling this action, Citigroup did not admit or deny the
findings.
"Our most important mission is to assure our clients that their
assets are secure in our care and that they can trust us to manage
them with their interests at the forefront," said President and
Chief Operating Officer Robert B. Willumstad in a statement. "We
recognize that aspects of the transfer agency arrangements entered
into six years ago did not reflect the way we think business should
be done, and that is unacceptable."
Citigroup outlined a new policy as part of the settlement in which
it will retain an independent monitor to oversee a competitive
bidding process if a Citigroup affiliate submits a proposal to
provide transfer agency services. The bank also said funds' boards
may request that Citigroup retain an independent consultant whenever
Citigroup recommends an affiliate as a service provider.
Shares of Citigroup rose 3 cents to $47.31 in afternoon trading on
the New York Stock Exchange.
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