The Financial Industry Regulatory Authority has hit Citigroup Inc. with $1.5 million of sanctions for allegedly failing to supervise millions of dollars in trust funds belonging to cemeteries in Michigan and Tennessee.
The agency accused the company of mishandling funds as broker Mark Singer and two of his customers were involved in a scheme to misappropriate more than $60 million in cemetery trust funds in 2004 through 2006.
Citi, which neither admitted nor denied the allegations but consented to the entry of Finra's finding, will pay a $750,000 fine and $750,000 in commissions repayment. Spokesman Alex Samuelson said, "Having cooperated with authorities since 2007, we're pleased to have this matter resolved. This was a situation related to one former financial adviser at a single Smith Barney office."
One of the two customers involved in the scheme, Clayton Smart, is currently facing criminal charges in both states while a Tennessee trial involving Singer recently ended in a mistrial. He faces other charges.
Smart purchased a group of Michigan cemeteries in 2004 from trust funds that Finra alleges were improperly transferred from the cemeteries to a company of Smart's. He then used other trust funds to buy cemeteries and funeral homes in Tennessee, said Finra.
Singer joined Citigroup soon after the Michigan properties were bought, bringing most of his customers' accounts with him. As accounts were opened, the company "failed to reasonably supervise the handling of these accounts by inadequately responding to a succession of 'red flags'--failures that permitted the scheme to continue undetected until October 2006," Finra said in a statement.
It noted Citi received a whistleblower letter in May 2006 that alleged misconduct by Singer but that the company "failed to enhance supervision of Singer or restrict his activities."