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- Julie Erhardt is SEC's New Acting Chief Risk Officer
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- Getting a Handle on Virtual Currencies - FINRA
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Citigroup Global Markets to Pay $409K for Overcharging Customers
by Howard Haykin
Citigroup Global Markets agreed to pay a $100K fine plus $309K in restitution to eligible customers, to settle FINRA charges that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge.
CGMI, a New York, NY-based broker-dealer since 1936, is a full-service firm providing investment banking, asset management, brokerage, securities trading, and advisory services. The Firm trades securities for institutional and individual customers as well as proprietary accounts. CGMI has approximately 7,600 registered reps in over 700 branches.
FINRA FINDINGS. From January 2011 to September 2016 (the "Relevant Period"), CGMI disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge ("Eligible Customers"). These Eligible Customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses.
Following FINRA’s examination of CGMI, the firm conducted a review of its mutual fund sales for the Relevant Period and found that: (i) 274 Eligible Customer accounts had purchased mutual fund shares for which an available sales charge waiver was not applied; (ii) such Eligible Customers were overcharged around $264,844 on mutual fund purchases; and, (iii) as part of this settlement, CGMI agrees to compensation these Eligible Customers $309,000 in restitution, inclusive of interest.
FINANCIALISH PRIMER ON MUTUAL FUNDS.
Class A shares … typically are subject to a front-end sales charge when originally purchased, and have annual fund expenses, including ongoing distribution and service fees ("fees") that are typically 0.25 percent. The majority of the front-end charge is paid to the selling broker-dealer as a concession. Investors purchase Class A shares at the applicable ‘NAV’, plus the initial sales charge. Most funds, however, will waive the sales charge on Class A shares for certain investors, under certain circumstances.
Class B and C shares … typically do not carry a front-end sales charge but have significantly higher distribution and service fees (typically 1.00%) and may be subject to a contingent deferred sales charge ("CDSC"). Some mutual funds offer Class R shares for purchase by certain retirement plans.
Class R shares … typically are sold without a front-end sales charge. However, Class R shares typically have higher fees than Class A shares.
This case was reported in FINRA Disciplinary Actions for November 2018.
For details on the case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016049977601.