Fraud at Palo Alto branch costs Citigroup $500K
Branch failed to supervise sales assistant who stole $750,000 from customers, regulatory agency finds
The failed supervision of a Citigroup branch employee in Palo Alto has resulted in a $500,000 fine for the parent company, Citigroup Global Markets, Inc.
The Financial Industry Regulatory Authority (FINRA) announced on Tuesday (Aug. 9) that it fined Citigroup Global Markets after Tamara Lanz Moon, a former registered general securities representative and a sales assistant at the firm's Palo Alto branch office, stole $749,978 from 22 customers.
Moon, formerly of Redwood City, also falsified account records and engaged in unauthorized trades in customer accounts during an eight-year period, according to the regulators. The fraud occurred until 2008, according to the federal indictment.
Citigroup has compensated customers for their losses. She was indicted by the grand jury on June 23 on six counts of mail fraud and a forfeiture allegation. She faces 120 years in prison maximum if convicted on all counts and a $250,000 fine for each count.
Moon targeted elderly, ill or otherwise vulnerable customers whom she believed were unable to monitor their accounts. Moon's victims included her own father, authorities said.
"Tamara Moon used her knowledge of Citigroup's lax supervisory practices at the branch. ... Citigroup had reason to know what she was doing and could have stopped her," said Brad Bennett, FINRA's executive vice president and chief of enforcement.
The regulatory agency said Citigroup failed to detect or investigate a series of "red flags" that should have alerted the firm to Moon's improper use of customer funds. The red flags included exception reports generated to flag conflicting information in new account applications and customer-account records with suspicious transfers of funds between unrelated accounts.
Citigroup also failed to implement reasonable systems and controls to supervise and review customer accounts, enabling Moon to falsify new account applications and other records, FINRA found.
In one incident, Moon misappropriated nearly $80,000 from an elderly widow by entering an alternate address and phone number for the account. When Moon was questioned about the discrepancies, she told Citigroup the client had moved to Arizona, an explanation that did not seem reasonable, authorities said. Citigroup accepted Moon's explanation without further inquiry, FINRA concluded.
In another instance, Moon created an account in the name of a deceased customer even after Citigroup had been notified that the customer had died.
In a separate incident, Moon transferred $150,000 from an account held by a customer to a fraudulent account she created in her father's name. Two days later, Moon transferred $90,000 from the fraudulent account in her father's name to an account over which she had control.
According to a disciplinary action report, Moon used the money to remodel her home and to make speculative investments in real estate.
Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings. FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.
Staff Writer Sue Dremann can be emailed at firstname.lastname@example.org.