WASHINGTON — Citigroup has agreed to pay a $600,000 fine and be censured to settle regulators’ charges that it failed to supervise complex stock- trading strategies aimed at reducing the bank’s potential tax bill.
The Financial Industry Regulatory Authority, the brokerage industry’s self-policing organization, on Monday announced the civil fine against the bank’s division Citigroup Global Markets.
Citigroup did not admit to or deny the allegations.
Citigroup failed to supervise and control trading, and failed to prevent improper internal trades as well as those with some of the bank’s trading partners, FINRA said. The transactions in question occurred between 2000 and 2005.
One of the strategies involved a Citigroup unit in New York buying stock from foreign brokerage customers. After some time had elapsed, during which the taxable dividends on the stock were paid out, the stock was sold back to the customers, FINRA said.
When dividends on U.S. company shares are paid to foreign investors, they may be subject to U.S. withholding taxes. Under the Citigroup arrangement, certain foreign customers were deemed to receive a “dividend equivalent” in a swap, not considered to be subject to withholding taxes.
