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 for failing to supervise Tamara Lanz Moon, a former registered general securities representative and a sales assistant at the firm's Palo Alto branch office.
Moon, formerly of Redwood City, had been registered since 1993, appropriated $749,978 from 22 customers, 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 losses resulting from Moon's misconduct. 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 took advantage of Citigroup's supervisory lapses at the branch and targeted elderly, ill or otherwise vulnerable customers whom she believed were unable to monitor their accounts. Moon's victims included elderly widows, a senior with Parkinson's disease and her own father, authorities said.
"Tamara Moon used her knowledge of Citigroup's lax supervisory practices at the branch to take advantage of some of the firm's most vulnerable customers, including the elderly. 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 that are 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's account.
An exception report highlighted two address discrepancies in the customer's account. The documents showed the street address did not correspond to the city and zip code provided and the telephone prefix did not correspond to the address.
Moon, who had entered the account information, told Citigroup the discrepancies arose because the client had moved to Arizona, an explanation that did not seem reasonable, authorities said. Citigroup accepted Moon's explanation without further inquiry, enabling Moon to continue her misappropriation of customer funds, FINRA concluded.
Citigroup also failed to detect suspicious activity involving transfers and disbursements in the accounts Moon used to misappropriate customer funds.
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.
Moon created a fraudulent account in the name of the deceased customer's widow. She transferred $10,440 from the customer's fraudulent account to the widow's fraudulent account. A few weeks later, Moon had checks issued for $5,000 and $2,500 from the fraudulent account set up in the widow's name to Moon's personal bank account, regulators said.
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. And her victims were not only the wealthy or deceased. Regulators found she took $55,000 from an American diplomat who was working overseas.
Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings. Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck at no charge or by calling 800-289-9999.
In 2010, the public used the service to conduct 17.2 million reviews of broker or firm records. Copies of disciplinary actions are available in FINRA's Disciplinary Actions Online database. FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.