The U.S. Securities and Exchange Commission (SEC) is looking into a possible civil injunction and/or administrative proceedings against Citigroup Asset Management, Citicorp Trust Bank, former asset management unit Chief Executive Thomas Jones and three other people.
Citigroup said the actions are related to its creation and operation of an internal transfer agent unit serving more than 20 Citigroup-managed closed-end funds. One of the individuals remains a Citigroup Asset Management employee and two are no longer with the money-management entity, according to a Reuters report.
The possible actions stems from Citicorp Trust’s 1999 entrance into the transfer agent business, when the unit hired a subcontractor to perform some of these services. This unnamed subcontractor signed a separate agreement with Citigroup Asset Management in 1998 that guaranteed investment management revenue to the money-management entity and investment banking revenue to an affiliate. The subcontractor business was later taken over by PFPC Inc., a unit of PNC Financial Services Group. The revenue guarantee was eliminated and a one-time payment was made by the subcontractor to an affiliate of Citigroup Asset Management.
Now the SEC is looking into possible wrongdoing by Citigroup Asset Management since the firm allegedly did not disclose the revenue guarantee when the boards of various Citi closed-end funds hired Citicorp Trust as transfer agent. Citigroup Asset Management also failed to inform the funds of the one-time payment. Citigroup said. As previously announced, Citigroup Asset Management has already paid funds, primarily through fee waivers, about $17 million plus interest. That amount matches revenue received by Citigroup through its revenue guarantee, the Reuters report said.
Citigroup said it is cooperating fully with SEC and is seeking to reach a settlement with the SEC staff.