In re Citigroup Global Markets Inc.

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98238 / August 29, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21583 
 
 
In the Matter of 
 
Citigroup Global Markets Inc. 
 
Respondent. 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”) against Citigroup Global Markets Inc. (“CGMI” or “Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
 
 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 

 2 
Summary 
 
The federal securities laws impose recordkeeping requirements on broker-dealers to 
ensure that they responsibly discharge their crucial role in our markets. The Commission has 
long said that compliance with these requirements is essential to the Commission’s efforts to 
further its mandate of protecting investors, maintaining fair, orderly, and efficient markets, and 
facilitating capital formation.  
 
 This matter concerns Respondent’s failure to make and keep current books and records 
concerning expenses that the firm incurred in connection with its underwriting of securities 
offerings.  For at least ten years, ending in May 2019, CGMI calculated and recorded in its books 
and records certain expense estimates as underwriter for securities offerings without knowing the 
basis for its calculation method during this period or taking steps to review or verify whether it was 
reasonable.  
 
 An underwriter is typically engaged by a company   to manage and sell the company’s 
securities, in exchange for a fee. A lead underwriter may form an underwriting syndicate by 
enlisting other underwriters to participate in a securities offering. Oftentimes, the lead underwriter 
will act as billing and delivery   bank (“BDB”), responsible for, among other things, aggregating 
expenses incurred by the underwriting syndicate and computing the underwriting fees to be paid to 
the syndicate members, net of expenses, including indirect expenses.  
 
 From at least 2009 through May 2019, while serving as BDB, CGMI had no policies and 
procedures or review process for its method of estimating its   indirect expenses associated with the 
underwriting of securities offerings. Instead, without knowing the basis during this period for its 
method, CGMI calculated its indirect expenses using a fixed percentage of each deal’s underwriting 
fee, which it divided into expense categories by fixed percentages and recorded in its general ledger. 
As a result, CGMI violated recordkeeping requirements of Section 17(a) of the Exchange Act and 
Rule 17a-3 thereunder, which require broker-dealers to make and keep current certain books and 
records. 
 
Respondent 
 
 1. Citigroup Global Markets Inc. (“CGMI”) is a New York corporation with its 
principal place of business in New York, New York and is dually registered with the Commission 
as a broker-dealer and investment adviser. CGMI is an indirect wholly owned subsidiary of 
Citigroup, Inc., a global financial services firm incorporated in Delaware and headquartered in New 
York, New York.  
 
 
 
 
 
 

 3 
Facts 
 
2. At all relevant times, CGMI engaged in the underwriting of securities offerings, 
managing and selling issuers’ securities, in exchange for a fee. CGMI sometimes enlisted other 
underwriters to form a syndicate of underwriters and frequently acted as the lead underwriter or 
BDB within the syndicate for such offerings. As BDB, CGMI was responsible for deal settlement, 
which included paying other syndicate members their pro rata portions of the fees earned by the 
syndicate, less each member’s pro rata share of any expenses incurred in connection with the 
securities offering.  
 
3. As BDB, CGMI, like other underwriters, charged “direct” and “indirect” expenses 
of securities offerings to the syndicate. CGMI categorized expenses that could be directly tied to a 
specific underwritten securities offering as direct expenses. CGMI categorized expenses that it 
could not directly link to a specific deal, e.g., annual subscriptions to market data providers, as 
indirect expenses.  
 
4. From at least 2009 until May 2019, CGMI calculated indirect expenses for 
thousands of its underwritten securities offerings as follows:  First, upon deal settlement, CGMI 
calculated indirect expenses based on fixed percentages   of the deal’s underwriting fee, an amount 
paid to the syndicate per share underwritten. For equity securities offerings, CGMI calculated its 
indirect expenses to be 7% of the deal’s underwriting fee and capped the indirect expense amount 
at either $75,000 or $85,000, depending on the underwriting fee. For debt securities offerings, 
CGMI calculated the indirect expense to be 10% of the deal’s underwriting fee and capped the 
indirect expense amount at $75,000.  
 
5. Second, after arriving at the total indirect expense amount for a particular offering, 
CGMI used “allocation grids” to divide the total indirect expenses for that offering into specific 
categories of expenses, including “word processing, copying, printing,” and “travel and 
entertainment.”   
 
6. After calculating indirect expenses pursuant to the unsubstantiated method above, 
CGMI then recorded these indirect expense amounts in the firm’s general ledger, a record required 
to be made and kept current by the firm under Exchange Act Rule 17a-3. 
 
7. CGMI did not know the basis for its method of calculation of indirect expenses 
during the relevant period, including its use of fixed percentages of underwriting fees to calculate 
indirect expenses per deal,  its use of expense amount caps, or its use of “allocation grids,” as 
described above. 
 
8. For at least a decade, prior to May 2019,  CGMI conducted no review or similar 
process to verify that its method of calculating indirect expense estimates was reasonable.    
 
9. In May 2019, CGMI voluntarily revised its method of calculating indirect expenses 
associated with its underwriting business.  
 

 4 
 
Violation 
 
 10. As a result of the conduct described above, CGMI willfully
2
 violated the 
recordkeeping requirements of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, 
which require broker-dealers to make and keep current certain books and records, including 
“[l] edgers (or other records) reflecting all assets and liabilities, income and expense and capital 
accounts” (paragraph (a)(2) of Rule 17a-3).  
 
CGMI’s Remedial Efforts 
In determining to accept the Offer, the Commission considered remedial acts promptly 
undertaken by Respondent and cooperation afforded the Commission staff.  
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in CGMI’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
 A. Respondent CGMI cease and desist from committing or causing any violations and 
any future violations of Section 17(a) of the Exchange Act and Rule 17a-3 promulgated thereunder.   
 
B. Respondent CGMI is censured. 
 
C. Respondent CGMI shall, within ten (10) days of the entry of this Order, pay a civil 
money penalty in the amount of $2.9 million to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§   3717. Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm
; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act, “‘means no more 
than that the person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. 
Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). 
 

 5 
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Citigroup Global Markets Inc. as a Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Joseph G. 
Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and Exchange 
Commission, 100 Pearl Street, Suite 20-100, New York, New York 10004-2616.   
 
 D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes. To preserve 
the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it 
shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 
this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty 
Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 
Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 
in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondent by or on behalf of one or more investors based on 
substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
        Secretary 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98238 / August 29, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21583 
 
 
In the Matter of 
 

Citigroup Global Markets Inc. 
 
Respondent. 
 
 

ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  

   
 

I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”) against Citigroup Global Markets Inc. (“CGMI” or “Respondent”).   

 
II. 

 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 
 

III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
 
 

 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 



 2 

Summary 
 

The federal securities laws impose recordkeeping requirements on broker-dealers to 
ensure that they responsibly discharge their crucial role in our markets. The Commission has 
long said that compliance with these requirements is essential to the Commission’s efforts to 
further its mandate of protecting investors, maintaining fair, orderly, and efficient markets, and 
facilitating capital formation.  
 
 This matter concerns Respondent’s failure to make and keep current books and records 
concerning expenses that the firm incurred in connection with its underwriting of securities 
offerings.  For at least ten years, ending in May 2019, CGMI calculated and recorded in its books 
and records certain expense estimates as underwriter for securities offerings without knowing the 
basis for its calculation method during this period or taking steps to review or verify whether it was 
reasonable.  
 
 An underwriter is typically engaged by a company to manage and sell the company’s 
securities, in exchange for a fee. A lead underwriter may form an underwriting syndicate by 
enlisting other underwriters to participate in a securities offering. Oftentimes, the lead underwriter 
will act as billing and delivery bank (“BDB”), responsible for, among other things, aggregating 
expenses incurred by the underwriting syndicate and computing the underwriting fees to be paid to 
the syndicate members, net of expenses, including indirect expenses.  
 
 From at least 2009 through May 2019, while serving as BDB, CGMI had no policies and 
procedures or review process for its method of estimating its indirect expenses associated with the 
underwriting of securities offerings. Instead, without knowing the basis during this period for its 
method, CGMI calculated its indirect expenses using a fixed percentage of each deal’s underwriting 
fee, which it divided into expense categories by fixed percentages and recorded in its general ledger. 
As a result, CGMI violated recordkeeping requirements of Section 17(a) of the Exchange Act and 
Rule 17a-3 thereunder, which require broker-dealers to make and keep current certain books and 
records. 
 

Respondent 
 
 1. Citigroup Global Markets Inc. (“CGMI”) is a New York corporation with its 
principal place of business in New York, New York and is dually registered with the Commission 
as a broker-dealer and investment adviser. CGMI is an indirect wholly owned subsidiary of 
Citigroup, Inc., a global financial services firm incorporated in Delaware and headquartered in New 
York, New York.  
 
 
 

 
 
 



 3 

Facts 
 

2. At all relevant times, CGMI engaged in the underwriting of securities offerings, 
managing and selling issuers’ securities, in exchange for a fee. CGMI sometimes enlisted other 
underwriters to form a syndicate of underwriters and frequently acted as the lead underwriter or 
BDB within the syndicate for such offerings. As BDB, CGMI was responsible for deal settlement, 
which included paying other syndicate members their pro rata portions of the fees earned by the 
syndicate, less each member’s pro rata share of any expenses incurred in connection with the 
securities offering.  

 
3. As BDB, CGMI, like other underwriters, charged “direct” and “indirect” expenses 

of securities offerings to the syndicate. CGMI categorized expenses that could be directly tied to a 
specific underwritten securities offering as direct expenses. CGMI categorized expenses that it 
could not directly link to a specific deal, e.g., annual subscriptions to market data providers, as 
indirect expenses.  

 
4. From at least 2009 until May 2019, CGMI calculated indirect expenses for 

thousands of its underwritten securities offerings as follows:  First, upon deal settlement, CGMI 
calculated indirect expenses based on fixed percentages of the deal’s underwriting fee, an amount 
paid to the syndicate per share underwritten. For equity securities offerings, CGMI calculated its 
indirect expenses to be 7% of the deal’s underwriting fee and capped the indirect expense amount 
at either $75,000 or $85,000, depending on the underwriting fee. For debt securities offerings, 
CGMI calculated the indirect expense to be 10% of the deal’s underwriting fee and capped the 
indirect expense amount at $75,000.  

 
5. Second, after arriving at the total indirect expense amount for a particular offering, 

CGMI used “allocation grids” to divide the total indirect expenses for that offering into specific 
categories of expenses, including “word processing, copying, printing,” and “travel and 
entertainment.”   

 
6. After calculating indirect expenses pursuant to the unsubstantiated method above, 

CGMI then recorded these indirect expense amounts in the firm’s general ledger, a record required 
to be made and kept current by the firm under Exchange Act Rule 17a-3. 

 
7. CGMI did not know the basis for its method of calculation of indirect expenses 

during the relevant period, including its use of fixed percentages of underwriting fees to calculate 
indirect expenses per deal, its use of expense amount caps, or its use of “allocation grids,” as 
described above. 

 
8. For at least a decade, prior to May 2019, CGMI conducted no review or similar 

process to verify that its method of calculating indirect expense estimates was reasonable.  
 
9. In May 2019, CGMI voluntarily revised its method of calculating indirect expenses 

associated with its underwriting business.  
 



 4 

 
Violation 

 
 10. As a result of the conduct described above, CGMI willfully2 violated the 
recordkeeping requirements of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, 
which require broker-dealers to make and keep current certain books and records, including 
“[l]edgers (or other records) reflecting all assets and liabilities, income and expense and capital 
accounts” (paragraph (a)(2) of Rule 17a-3).  
 

CGMI’s Remedial Efforts 

In determining to accept the Offer, the Commission considered remedial acts promptly 
undertaken by Respondent and cooperation afforded the Commission staff.  

IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in CGMI’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
 A. Respondent CGMI cease and desist from committing or causing any violations and 
any future violations of Section 17(a) of the Exchange Act and Rule 17a-3 promulgated thereunder.   
 

B. Respondent CGMI is censured. 
 
C. Respondent CGMI shall, within ten (10) days of the entry of this Order, pay a civil 

money penalty in the amount of $2.9 million to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§ 3717. Payment must be made in one of the following ways:   
 

(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  

 
(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  

 
2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act, “‘means no more 
than that the person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. 
Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  

http://www.sec.gov/about/offices/ofm.htm


 5 

 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 

 
Payments by check or money order must be accompanied by a cover letter identifying 

Citigroup Global Markets Inc. as a Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Joseph G. 
Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and Exchange 
Commission, 100 Pearl Street, Suite 20-100, New York, New York 10004-2616.   
 
 D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes. To preserve 
the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it 
shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 
this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty 
Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 
Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 
in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondent by or on behalf of one or more investors based on 
substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 

 
 By the Commission. 
 
 
 

Vanessa A. Countryman 
        Secretary 


	UNITED STATES OF AMERICA
	In the Matter of
	Citigroup Global Markets Inc.
	Respondent.
	Respondent
	Facts