Citigroup Said to Accept Finra Fine in Tax-Linked Stock Deals

Citigroup Said to Accept Finra Fine in Tax-Linked Stock Deals


Oct. 12 (Bloomberg) -- Citigroup Inc. will pay $600,000 to settle a regulator’s claims that it inadequately supervised transactions that helped international customers avoid U.S. taxes on stock dividends, according to a person familiar with the matter.

Investigators at the Financial Industry Regulatory Authority, which polices almost 4,800 U.S. firms, found Citigroup Global Markets failed to supervise the system of trades and swap contracts and inadequately monitored certain communications, the person said, declining to be identified because the matter isn’t public. The settlement may be announced as early as today, the person said.

A U.S. Senate inquiry last year found that Wall Street firms concocted derivatives and stock-loan deals to help clients including international hedge funds avoid hundreds of millions of dollars in taxes. New York-based Citigroup, aware the Internal Revenue Service might deem its transactions improper, voluntarily disclosed them and paid $24 million in taxes for 2003 through 2005, the Senate’s Permanent Subcommittee on Investigations said in a report released in September of 2008.

Under the system, an overseas client typically sold U.S. shares to Citigroup before dividends were paid, then later received an amount similar to the dividend through a derivative contract, according to the person familiar with Finra’s findings. Citigroup initially lacked written procedures to oversee the system, and after the firm adopted a policy, employees didn’t always follow it, the person said.

Citigroup spokesman Alexander Samuelson and Finra spokesman Herb Perone declined to comment. The Financial Times reported the settlement yesterday.

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