The SFC slammed Citi’s ‘inadequate and substandard’ due diligence work on Real Gold’s flotation.
The Securities and Futures Commission (SFC) slapped Citigroup Global Markets Asia Limited (Citi) with $57m fine over its sponsor work with the IPO listing application of Chinese miner Real Gold Mining Limited.
The regulator discovered that Citi had failed to conduct adequate and reasonable due diligence on Real Gold’s customers and maintain adequate supervision over its staff when carrying out the sponsor work for the IPO.
The regulator considers the customer-related due diligence on Real Gold ‘inadequate and substandard’ after Citi conducted all of its customer interviews by telephone without independent verification. It also did not seek direct confirmation from customers with regards to their transaction amounts with Real Gold.
Real Gold also entered into a memorandum of long-term cooperation (MLC) with three customers who contributed to an aggregate of 35.2% of the company’s sales in the ten months ending October 2008. The customers were obliged under the MLC to purchase whatever amount of gold or zinc concentrates Real Gold decided, in its absolute discretion, to sell them.
However, Citi did not interview one of the three customers party to the MLC and although it did reach out to one of the customers, no question about the MLC was asked.
“Under these circumstances, the SFC considers that Citi’s approach towards customer due diligence was not justified by the relevant regulatory requirements and the SFC’s view is supported by the opinion of an independent market expert,” the regulator concluded.
In March, the SFC also slapped UBS Group AG with a $119m penalty and banned from sponsoring IPOs in Hong Kong for 18 months due to its sponsor work on a particular IPO.
Photo from Flickr
Do you know more about this story? Contact us anonymously through this link.