Sebi slaps Rs1 cr fine on Citigroup Global

Securities and Exchange Board of India (Sebi) has imposed a Rs 1 crore
penalty on Citigroup for allowing an overseas corporate body (OCB) to invest in Indian securities market in 2003. This was in violation of rules which disallow OCBs from dealing in domestic equity markets through foreign institutional investors (FIIs) or their sub-accounts.

The Sebi order, dated August 11, said Citigroup also failed to provide
information regarding issuance of offshore derivative instruments to the OCB Magnus Capital Corporation Ltd in its mandatory fortnightly statement to the regulator filed on August 2003.

After Credit Suisse First Boston (CSFB) and Jermyn Capital LLC, Citigroup is the third FII to get penalised by Sebi for irregularities in the Ketan Parekh-led securities scam of 2002.

When contacted a Citigroup spokesperson said: "This order by Sebi against Citigroup Global Markets (Mauritius) Ltd follows an adjudicating hearing to relating to a matter in 2003. Citigroup will continue to fully cooperate with Sebi."

The Sebi order severely criticised the level of compliance of the FII. "If
this is the way a registered entity complies with the Sebi circular, I would
say it is no compliance... A professionally managed Citigroup, having its
presence in the financial/capital sectors worldwide, is expected to have
compliances of highest level, and which is found lacking in this matter,"
the order said.

This particular case followed the leads from the Joint Parliamentary
Committee (JPC) probe into the securities scam in 2002 which concluded that "OCBs played a significant role (in the scam)". The JPC report also
mentioned "failure on the part of FIIs to report about issue of
Participatory Notes (PN) should be viewed seriously and should entail
stringent punitive action."

Stating that Citigroup tried to suppress the fact relating to the issuance
of off-shore derivative instruments, Sebi said this was a violation of
Regulation 20 of the Sebi's FII Regulations.

The Sebi order on Citigroup also referred to the JPC Report which said that the regulator has "expressed suspicion that some of the Indian promoters have purchased shares of their own companies through PN issued by sub-accounts of FIIs". This mechanism enables the holders to hide their entities and enables them to transact in Indian capital market.