Regulator summons Citi, Goldman

Citigroup was on Friday fined $2 mn after a junior analyst improperly disclosed confidential information before Facebook's IPO

Massachusetts Secretary of the Commonwealth William Galvin subpoenaed Citigroup Inc along with Facebook Inc’s lead underwriters Morgan Stanley, Goldman Sachs Group and JPMorgan Chase & Co in connection with the decline of Facebook’s share price following its initial public offering in May, his office said.

Citigroup was fined $2 million after a junior analyst improperly disclosed confidential information before Facebook’s IPO, Galvin’s office said yesterday.

As a part of Facebook’s underwriting syndicate, Citigroup Global Markets was barred from disseminating research until 40 days after the stock offering, Galvin said yesterday in a statement. About two weeks before the IPO, a junior analyst at the unit e-mailed two employees at TechCrunch.com seeking feedback on a Facebook document that contained a senior analyst’s view of investment risks and revenue estimates, Galvin said.

IPO SAGA

• Citigroup was on Friday fined $2 million after a junior analyst improperly disclosed confidential information before Facebook’s IPO
• The probe began in May as Facebook’s stock slid amid lawsuits alleging that retail investors weren’t told negative news about Facebook’s prospects
• As a part of Facebook’s underwriting syndicate, Citigroup Global Markets was barred from disseminating research until 40 days after the stock offering 

The Citigroup e-mails are part of a larger trove of documents that Galvin obtained by subpoenaing the bank along with the lead underwriters, Galvin’s office said. The probe began in May as Facebook’s stock slid amid lawsuits alleging that retail investors weren’t told negative news about Facebook’s prospects.

Galvin’s Securities Division is focusing on the roles of investment banks and securities analysts, and issues of disclosure, his office said.

Warning to industry
]The Citigroup penalty “should serve as a warning to the industry as a whole,” Galvin said in the statement about Citigroup. “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 junior analyst, whose name wasn’t released, was fired by Citigroup on September 27, Galvin said. Yesterday, Citigroup fired Mark Mahaney, a senior technology analyst, according to a person with direct knowledge of the matter, as it settled Galvin’s claim that a junior analyst disclosed confidential information before Facebook’s IPO.

The exit of Mahaney, 46, resulted from earlier actions uncovered in the course of the Facebook probe, according to a person familiar with the matter. Mahaney, who was based in San Francisco, declined to comment when reached yesterday by mobile phone.

Not at bank
As of yesterday, Mahaney was no longer at Citigroup, said the bank’s spokeswoman, Sophia Stewart. “We take our internal policies and procedures very seriously and have taken the appropriate actions,” she said in an e-mail.

JPMorgan spokesman Joseph Evangelisti declined to comment on Galvin’s probe, as did Mary Claire Delaney, a Morgan Stanley spokeswoman, and Leslie Shribman, a Goldman Sachs spokeswoman.

Galvin has said separately that he has subpoenaed Morgan Stanley, Facebook’s primary underwriter, to learn more about talks between Scott Devitt, one of the firm’s research analysts, and its institutional investors about Facebook’s revenue.

A drop in Facebook stock after the May 17 offering fuelled shareholder complaints, regulatory probes and more than 40 lawsuits, with some investors claiming the social-network company’s managers failed to disclose revised forecasts before the IPO, and others blaming underwriters or analysts.

Facebook has said the lawsuits lack merit.

The US Securities and Exchange Commission also is looking at the IPO, said a person familiar with the probe who asked not to be identified because the probe is confidential. The top securities regulator wants to know whether retail investors were harmed by misleading information from brokers or selective disclosures to analysts by the Facebook’s bankers regarding Facebook’s prospects for mobile customers, the person said.