Morgan Stanley Smith Barney (MS) and Citigroup Global Markets (MS) have settled civil charges brought by the US Securities and Exchange Commission accusing the two firms of making misleading and false statements about the CitiFX Alpha, which is a foreign exchange trading program. Without denying or admitting to the regulator’s findings, Morgan Stanley and Citigroup will each pay more than $624K of disgorgement, interest of over $89K, and a $2.25M penalty.
Citigroup’s ownership interest in Morgan Stanley was a 49% stake during the period at issue, from 8/2010 to 11/2011, when the firms’ registered representatives were marketing the CitiFX Alpha to Morgan Stanley customers.
However, according to the regulator, the oral and written representations that these representatives made were based on previous risk metrics and performance. Meantime, they purportedly did not do an adequate enough job of disclosing to investors that the latter could be put into the forex trading program with the use of more leverage than what was promoted, as well as that there would be markups for each trade.
As a result of the markups and undisclosed leverage, said the SEC, investors sustained substantial losses.
Following the 2008 financial crisis, Morgan Stanley and Citigroup joined their wealth-management units together. That venture is now called Morgan Stanley Smith Barney.
In other Citi related news, the Consumer Financial Protection Bureau (CFPB) is ordering two of the bank’s subsidiaries, CitiMortgage and CitiFinancial Servicing, to pay $28.8M for not being more clear with homeowners who were facing foreclosure about their options.
According to the CFPB, CitiMortgage asked some homeowners looking for foreclosure relief for forms and documents that were not necessary or that they had already provided. Now, CitiMortgage must give about 41,000 customers back approximately $17M and pay a $3M penalty.
As for CitiFinancial Servicing, the government believes that the firm did not properly notify certain customers of their foreclosure relief options and some borrowers were incorrectly charged for credit insurance. To settle, the Citi unit will pay about $4.4M in restitution to approximately 7,800 consumers.
If you suspect that your investment losses were caused by the mistakes or negligence of your brokerage firm or financial representative, contact Shepherd Smith Edwards and Kantas, LTD LLP and ask to speak with an experienced securities fraud lawyer.
The SEC Order in the Morgan Stanley Case (PDF)
The SEC Order in the Citigroup Case (PDF)
The CFPB Consent Order in the CitiFinancial Servicing Case (PDF)