Hong Kong's market regulator said Monday it had fined a unit of US banking giant Citigroup HK$6 million ($770,000) after it failed to promptly report a Pozni scheme run by a former employee. The Securities and Futures Commission (SFC) said an investigation found a former licensed representative of the bank, known as "Mr X", was responsible for the fraudulent scheme involving 13 clients.
The clients invested through "Mr X" on the basis their money would be pooled and used to buy US Treasuries among other products. "Mr X" was later dismissed for gross misconduct, but the SFC said the unit, known as the Citigroup Global Markets Asia Limited, or Citi Asia, failed to report the incident to the regulator in a "timely manner" as required.
"Citi Asia not only failed to detect a Ponzi scheme operating under its nose, despite having the opportunity to do so, but then failed to report the scheme to the SFC in a timely way," SFC enforcement executive director Mark Steward said in a statement. In Ponzi schemes, investors typically are lured by an appearance of high returns to put money into a fund or some other investment. New money coming into the fund is used to sustain the returns until the schemes collapses.
"Delay in reporting simply helps the wrongdoer," Steward said, adding that the investigation was made difficult as "Mr X" had left Hong Kong. Citigroup said it accepted the SFC's decision and agreed to compensate those affected by the scheme, an official told Dow Jones Newswires. In July, India's central bank fined a unit of Citigroup $55,000 for flouting guidelines on customer background checks and money laundering.
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