Massachusetts Secretary of State William Galvin yesterday fined Citigroup Global Markets Inc. $2 million for failing to properly supervise a research analyst who disclosed confidential information about Facebook's initial public offering. Galvin is also investigating the IPO's other underwriters.
The state's top securities regulator said he has subpoenaed Goldman Sachs, Morgan Stanley and J.P. Morgan as part of his probe, which led to the firing of the analyst and a supervisor.
"If you're going to have a hard and fast rule that protects the integrity of confidential information, you can't have two sets of rules," Galvin said. "We thought we had to act. ... Clearly, a lot of Massachusetts people invested in Facebook."
In an email yesterday, Citigroup Global Markets spokeswoman Sophia Stewart said, "We take our internal policies and procedures very seriously and have taken the appropriate actions."
Citigroup Global Markets is accused of violating securities laws, which barred the underwriters of Facebook's May 18 initial public offering from disseminating written research about the social network until 40 days after the IPO.
"If you're inviting the whole public into the Facebook IPO process, then the whole public has to be given equal information and equal access to the information," said Max Wolff, senior analyst at Greencrest Capital. "You can't have some larger institutional investors being told more or different information than the general public."
Until the $2 million fine against Citigroup Global Markets, such disclosures happened "from time to time" in the industry, said Francis Gaskins, president of the research company IPOdesktop.com.
"But they're going to be very careful what, if anything, they put in writing now," Gaskins said. "That's very important for their image."
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