Massachusetts fined Citigroup Global Markets Inc. $2 million for violating state securities law when it released confidential information about Facebook Inc. during the social media company’s troubled initial public offering earlier this year.
While the case relates to action that occurred in Citigroup’s San Francisco office, Massachusetts has jurisdiction due to a 2003 consent order that the firm, then known as Salomon Smith Barney, signed with the state to settle charges of securities fraud. Citigroup is also registered to do business in Massachusetts.
Citigroup has agreed to pay the fine and is not disputing the charges.
“We are pleased to have this matter resolved. We take our internal policies and procedures very seriously and have taken the appropriate actions,” said Sophia Stewart, a Citigroup spokeswoman, in an e-mail.
Massachusetts said an analyst at Citigroup, which was an underwriter for Facebook in the IPO, improperly sent confidential information about the company to a technology news site several weeks before the scheduled stock sale. The e-mail contained the firm’s opinion about investment risk into Facebook and estimated revenues for the social media site. The analyst who sent the e-mails was fired in September. The state’s investigation also revealed that the firm separately released confidential information about YouTube, the video-sharing site owned by Google Inc.
The IPO was one of the largest ever in the stock market, with Facebook shares debuting at $38 and the company raising $16 billion. But the much-heralded launch hit immediate problems, including an unexpected delay in trading that first day. Moreover Facebook and its investment banks have since been accused of not sufficiently warning investors of potential business risks, including it strategy of dealing with the shift to mobile computing.
In the days after the IPO Facebook’s stock plummeted and has yet to recover. It is currently trading in the $22-range.
Galvin said there were many investors in Massachusetts who deserved to know more information about the company before they bought its stock.
“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 so that the integrity of the process is maintained,” he said. “This penalty should serve as a warning to the industry as a whole.”
Massachusetts has also subpoenaed Morgan Stanley, J.P. Morgan, and Goldman Sachs over the offering, and Galvin said his office continues to investigate activity leading up to the IPO.