NEWARK, N.J. - For the second time this week, a company has settled allegations of market timing with a state attorney general.
Citigroup Global Markets, Inc., will pay $5 million in civil penalties to the State of New Jersey, which alleged Smith Barney -- a division of Citigroup -- did not reasonably supervise agents who practiced market timing. Also, the company, which will also pay $35 million in disgorgement and another $5 million in penalties to the New York Stock Exchange Regulation, did not maintain accurate books and records related to market timing activities, Attorney General Anne Milgram said.
Wall Street traders practice market timing by buying mutual fund shares after important events or market changes, but before the share price changes at the end of the trading day. This practice harms long-term mutual fund investors by increasing the fees and costs they pay and potentially decrease the value of mutual fund shares, Connecticut Attorney General Blumenthal said in announcing a settlement with The Hartford Financial Services Group Monday.
"The alleged conduct reveals just how harmful the consequences of market timing can be on long-term investors in mutual funds," Milgram said. "We want this settlement to provide a warning to the industry that deceptive practices will not be tolerated, and that we hope that it spurs other firms to take a hard look at the adequacy and enforcement of their own policies and procedures."
The separate settlement with NYSE Regulation will be placed in a distribution fund to compensate allegedly injured customers.
The agencies alleged that between Jan. 2000-Sept. 2003, some Smith Barney agents engaged in more than 250,000 market timing exchanges on behalf of more than 1,100 customers, generating approximately $32.5 million in gross revenues.
Milgram's office says market timing is not illegal and can be defined as "frequent buying and selling of shares of the same mutual fund or buying or selling mutual fund shares in order to exploit inefficiencies in mutual fund pricing."
She says it is harmful to mutual fund shareholders because it dilutes the value of their shares.