More On Legal & Compliancefrom The Advisor's Professional Library
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
- U.S. Securities and Exchange Commission Information This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 and selected rules under the Advisers Act. It also provides information about the resources available from the SEC to help advisors understand and comply with these laws and rules.
Massachusetts securities regulator William Galvin on Thursday fined Citigroup Global Markets (CGMI) $30 million for misconduct by a research analyst.
In December, the Massachusetts Securities Division said, the analyst provided large U.S. hedge fund and institutional clients with confidential unpublished research information about Hon Hai, a major supplier of Apple iPhones.
Recipients of the confidential, nonpublic information were SAC Capital, T. Rowe Price, Citadel and GLG Partners.
In addition to the fine, the securities division censured CGMI and required it to perform a three-year review of its policies and procedures on disclosure of confidential nonpublic research information.
“It seems that the concept that investors are to be presented with a level playing field when it comes to the product of research analysts is a lesson that must be learned over and over again,” said Galvin, in a statement. “But it’s important that it should be taught as often as necessary.”
CGMI has previously settled with the Massachusetts Securities Division for federal and state securities violations relating to research analysts in the 2003 Global Research Analyst Settlement and more recently in a 2012 division consent order in connection with Facebook’s initial public offering, the securities division said.
In this case, the securities division found that Kevin Chang, a research analyst employed by a Taiwanese affiliate of CGMI, released unpublished research to the named hedge fund and institutional clients one day before publishing virtually identical information for the public.
“On Dec. 13, 2012, following the publication of a report cutting Hon Hai production numbers by the Macquarie Group, an Australian competitor to CGMI in covering Hon Hai, Kevin Chang was pressured by large hedge fund and institutional clients for his research on Hon Hai,” the securities division said.
In response, Chang released the information to at least three units of SAC by forwarding an email that began: “Here is the new forecast.”
Chang “also sent this same or similar email to the other hedge fund and institutional clients. The order also states that the information shared with these CGMI clients was Chang’s own estimates and numbers on Hon Hai,” the securities division states.
Chang published his Hon Hai research on Dec. 14 which included virtually identical numbers that he had provided to the hedge fund and institutional clients on Dec. 13.
Two days after Chang’s research report, CGMI downgraded its recommendation on Apple stock from “Buy” to “Neutral.” Originally, Kevin Chang’s Hon Hai research report and the CGMI Apple research report were to be published together.
Due to Chang’s release of his research views prior to publication, he had to publish his research report early, but not before his revised Apple iPhone production estimates were communicated to the four clients. The securities division alleges “that the Hon Hai research report, containing significant cuts in Apple iPhone production numbers, would have a detrimental impact on Apple,” the order states.
Check out JPMorgan CEO Meets With Attorney General Amid MBS Charges on ThinkAdvisor.