Citigroup Inc. fired two analysts for leaking technology company secrets to the media in recent months, actions now costing the bank a $2 million fine.
“This penalty should serve as a warning to the industry as a whole,” Massachusetts Secretary of the Commonwealth William F. Galvin said in an Oct. 26 statement. “It is essential in these times of rapid and diffuse means of communications that financial institutions be vigilant to ensure that the rules on IPOs are observed by all their personnel.”
The fine was the direct result of a Citi junior analyst’s May emails to two TechCrunch, a major technology Web site, journalist. The writers were looking for information regarding Facebook’s upcoming public stock offering. According to the Wall Street Journal, the analyst and the writers all lived in the San Francisco Bay area, and the regulator’s order found they are, in fact, friends. U.S. law dictates bank analysts advising on flotations must not reveal any company research until the shares have been on the market for 40 days.
The group’s email exchanges were uncovered after more than 40 lawsuits and regulatory probes—driven by Facebook’s stock market slump since its May 18 offering—resulted in a subpoena issued to Citigroup. The junior analyst was terminated about two weeks after the Sept. 14 discovery.
In similar news, Citi also fired its senior internet analyst, Mark Mahaney Oct. 26. He was known for his breadth of high-profile contacts that helped the bank win highly-sought public offering contracts, and was named the top internet analyst the last four years by Institutional Investor Magazine.
Mahaney was terminated for failing to properly oversee his employees. Internal Citi rules require analysts to receive approval before speaking to the media. Therefore, as a senior analyst, Mahaney was charged with approving media contacts made by the junior analyst who illegally corresponded with TechCrunch.
Mahaney’s downfall more likely resulted from an entirely separate action, however. Bloomberg spoke with a person with direct knowledge on the matter who said Mahaney was fired because of an email he sent to a French business magazine reporter containing unpublished information about Google-owned YouTube. The informant, who asked not to be identified, said the email was uncovered during the course of the Facebook investigation. Galvin’s order mentioned a senior analyst leaking YouTube information, without mentioning a name.
Citi may not be the last bank to face allegations of leaking confidential corporate information. Galvin said his office is investigating other top Wall Street investment banks.
“We are looking at all of them, Morgan Stanley, Goldman Sachs, JPMorgan,” regulator William Galvin said in a telephone interview about the probe. “It is a very active investigation,” Galvin told Reuters.
Galvin bemoaned the frequency at which banks break the promise of firewalls between research and marketing, noting it’s been almost a decade since corporate banks reached a global research settlement to ensure investors’ protection.
“This is about not having two sets of rules, one for preferred clients and one for everyone else,” Galvin said.