Fraud at Palo Alto branch costs Citigroup $500K

Branch failed to supervise sales assistant who misappropriated customer funds, 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 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.

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Like this comment
Posted by white collar crime
a resident of Adobe-Meadow
on Aug 10, 2011 at 3:04 pm

Citizens are up in arms when robbers steal $75 from people on the street. How much do white collar criminals steal from the public? A $749,978 theft is probably considered a petty theft among white collar criminals. White collar crime also played a big part in the recent recession (starting 5 years ago and apparently not over yet). Why don't we have more law enforcement officers focusing on white collar crime? Street crime hardly matters in the grand scheme of things.

And why don't the newspapers publish mug shots of white collar criminals? If a street criminal stole even a fraction of this amount, you bet their photo would be on the front page.

Like this comment
Posted by Agreed
a resident of Another Palo Alto neighborhood
on Aug 10, 2011 at 3:40 pm

I agree. And we never hear the real world damage to people when they are victims of these crimes.

I saw a story on the news about how bank employees can steal out of safe deposit boxes. So i went to chek mine, and the only jewelry i had in there of significant value, my grandparents wedding rings, were not there. I have no way to prove the loss. At least with these accounts, there is a potential paper trail. With safe deposit boxes, there is no such trail.

Like this comment
Posted by Les
a resident of Adobe-Meadow
on Aug 10, 2011 at 8:05 pm

Unfortunately, smaller municipal police departments are not equipped or have the staffing to handle these type of investigations. In Palo Alto Police Department's case, even less so with the recent cuts and reductions. From what I gather, city departments are relegated to dealing with the most front line, immediate response, street level crimes.

These institutional crimes are usually handled by state or federal agencies. I do agree with the previous posters however. The impact on society may not be as visible, but is infinitely more damaging. More resources need to be allocated to combat white collar crime.

Like this comment
Posted by Los Altos resident
a resident of Los Altos
on Aug 11, 2011 at 12:02 am

It's really no surprise to me that the management at Citibank didn't keep a watchful eye or train their staff better. I had an acct at Citibank in Los Altos and when I went to close it, I simply showed them my statement and got a check for the amount in the acct which wasn't an enormous amt but a couple grand... no id or anything and I got a check just like that. I was scratching my head as to why they didn't bother to verify I was who I was i.e. ask for a CDL but oh well - it was mine but as you can imagine, the teller should have known better.

Like this comment
Posted by GoFigure
a resident of Menlo Park
on Aug 11, 2011 at 11:35 am

While I'm glad this criminal has been caught and is being punished. And I'm glad her employer is being held accountable.

However, why is this 'small' crime being hit with a half million dollar fine when the parent corp is implicated in billion dollar messes with token punishment?

Like this comment
Posted by FormerCitigroupEmployee
a resident of Evergreen Park
on Aug 12, 2011 at 7:06 am

I worked for this company many years ago (different location). I saw so many red flags but kept being hushed by managers. Just before I quit, I saw the person in our group with THE WORST record of making mistakes and being accused of insider trading PROMOTED TO COMPLIANCE OFFICER. Yes, they put the fox in charge of the hen house... I have no idea how much further things may have gone downhill since then.

In contrast, I can tell you that many financial institutions are VERY safe & secure and some even squeeky-clean. The police would be completely out of their element if they tried to investigate financial fraud and other similar crimes. These things are best handled by regulatory agencies such as the SEC and NASD. For the most part, these agencies do a very good job overseeing and regulating the industry. But things sometimes fall through the cracks for a while and this is one example. Ultimately, they did figure it out. And fining the company for lack of oversight is, in my opinion, the right thing to do. $500K may be small change for them. But I'm sure some manager's job is in jeopardy now, if not already eliminated. And of course the employee who executed the crime is being punished as well.

Our system is flawed. But it could be worse. It's just another lesson that we should all watch out for ourselves. Safety deposit box? Why would anyone use one of those if they really wanted their stuff to be safe?? ;-)

Sorry, but further commenting on this topic has been closed.

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