SEC Charges Former Citi Trader with Mismarking and Unauthorized Trading
Sept. 26, 2019
FILE NO. 3-19529
September 26, 2019 - The Securities and Exchange Commission today announced settled charges against former Citigroup Global Markets Inc. (CGMI) trader Mahesh Agarwal for mismarking a book of illiquid credit derivatives while sustaining losses from unauthorized trading in U.S. Treasury securities (USTs). In August 2018, the SEC instituted settled charges against Citigroup and CGMI for violations resulting from the conduct of Agarwal and two other former CGMI traders.
According to today's SEC order, from mid-2013 through 2014, Agarwal, a trader on CGMI's Emerging Markets Credit Trading Latin America Desk, accumulated large short positions in USTs in excess of his trading mandate, which permitted him to trade them for hedging purposes only. The SEC's order finds that, as he suffered increasing losses on the short UST positions, Agarwal's marking of other investments began to deviate from the marking methodologies approved by the desk supervisors and by CGMI's financial control group. Agarwal's mismarking caused CGMI to overvalue certain positions by approximately $29 million. The order also finds that Agarwal booked more than 100 interbook trades at off-market prices that inflated his performance. Finally, the order finds that Agarwal gave misleading or evasive responses when questioned by control personnel, provided incorrect marking instructions to a junior trader, and falsely certified compliance with his trading mandate and CGMI's mark-to-market policies each year.
The SEC's order finds that Agarwal willfully violated the books and records and internal controls provisions of Section 13(b)(5) of the Securities Exchange Act of 1934 and Rule 13b2-1 thereunder, and willfully aided and abetted, and caused, violations of the books and records provisions of Sections 13(b)(2)(A) and 17(a)(1) of the Exchange Act and Rule 17a-3(a) thereunder. Without admitting or denying the SEC's findings, Agarwal consented to the entry of a cease-and-desist order, an $80,000 civil penalty, as well as collateral and penny stock suspensions and an investment company prohibition, all for 12 months.
The SEC's investigation was conducted by Derek Schoenmann, Janna Berke, Dugan Bliss and Celeste Chase of the SEC's New York office. The case was supervised by Sanjay Wadhwa.