The Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets, UBS Securities and Deutsche Bank Securities a total of $425,000. It has ordered the firms to make payments to customers that could total $420,000 – in connection with the firms’ failure to adequately supervise communications with their customers in the initial public offering (IPO) of Vonage, LLC in May 2006.
Citigroup was fined $175,000 and ordered to pay a maximum of $250,000 to 284 potentially eligible customers; UBS was fined $150,000 and ordered to pay a maximum of $118,000 to 126 potentially eligible customers; and, Deutsche Bank was fined $100,000 and ordered to pay a maximum of $52,000 to 59 potentially eligible customers.
FINRA found that each of the firms failed to establish adequate systems and procedures to supervise the outsourcing of communications with customers about the sale of securities in the Vonage IPO. Each of the firms was a lead underwriter for the Vonage IPO, which included a directed share program (DSP) under which the firms sold approximately 4.2 million shares to Vonage customers through accounts the customers had opened at the firms.
Susan Merrill, executive vice president and chief of enforcement, said: “Communicating with customers about the sale of shares in a public offering is an important brokerage firm activity and must be supervised effectively by firms. Supervisory obligations apply not only to brokerage activities undertaken directly by firms, but also to those activities when they are outsourced to other parties. In this case, each of the firms failed to take effective action to ensure that important communications with customers about the sale of IPO shares were properly supervised, and they failed to take sufficient action to determine the cause and extent of the problem once they learned of it.”
FINRA, the Financial Industry Regulatory Authority, is an independent regulator for all securities firms doing business in the US.
