NEW YORK — The top securities regulator in Massachusetts has fined Citigroup $2 million, charging that an analyst there leaked confidential information about Facebook’s initial public offering.
Secretary of the Commonwealth William Galvin announced the charges Friday. Citi agreed to the settlement without admitting or denying wrongdoing.
Citi was part of the team of banks that helped underwrite the deal that made Facebook a public company in May. When a bank helps underwrite such a deal, it has information about a company that the broader investing public does not have. The bankers who underwrite the deal are not supposed to act on that information or share it with any favored clients, because it would give them an unfair advantage over the public.
The arrangements can also bring accusations of conflicts of interest; banks not only help companies go public or do other deals, they also have units that provide research on the companies. The research is supposed to be impartial, but the banks have a stake in how a company does if it is helping it with underwriting.
According to Galvin’s office, a junior analyst in Citigroup’s San Francisco office was assigned to help research Facebook. On May 2, the junior analyst sent an email to two employees at the technology website TechCrunch.com, with proprietary information about Citigroup’s research on Facebook.
“I am ramping up coverage on FB and thought you guys might like to see how the street is thinking about it (and our estimates),” the junior analyst wrote.
A TechCrunch employee wrote back: “There’s no way I can publish this doc from an anonymous source, right?”
A minute later, the junior analyst replied: “My boss would eat me alive.”
The analyst and the TechCrunch employee were friends, according to Galvin’s office, and had gone to Stanford together.
Citigroup fired the junior analyst in September. The bank told Galvin’s office that the junior analyst acted alone. In addition to agreeing to the $2 million fine, Citi also agreed to review its policies for overseeing analysts’ communications, and to strengthen compliance training for the analysts.
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