Bank dismantled a high-touch equities sales desk after probes
Ex-staffers in different cities filed wrongful dismissal suits
By Cathy Chan
December 3, 2024 at 6:00 PM EST
Updated on December 4, 2024 at 3:17 AM EST
On a Friday afternoon in March 2019, eight Citigroup equity sales traders in Hong Kong found themselves locked out of their computers without warning. Shortly after, they were ushered into separate meeting rooms and told they were being fired for misconduct.
Letters handed to each of them by Richard Heyes, Citigroup’s then head of equities for the Asia Pacific, said they had misled clients about certain stock positions. The traders were then escorted out of Citibank Tower without the chance to clear their desks, according to people familiar with the matter who asked not to be identified sharing private information.
Five years on and several employment lawsuits later, Citigroup is still dealing with the fallout from its decision to dismantle its Asia high-touch equities sales trading desk, where traders bought and sold stocks for clients via phone calls, electronic messaging and other person-to-person interactions. The saga has put a spotlight on a question facing Citigroup and its peers around the world: Who should take the blame when banks get caught breaking the rules?
New York-based Citigroup, which has a large international footprint, has been grappling with regulatory troubles at home and abroad. In July, US banking regulators fined it nearly $136 million over problems related to data-quality management and risk controls. The firm’s US equities division has separately been plagued by internal complaints about harassment, drugs and claims of a toxic workplace culture, Bloomberg News previously reported.
In Asia, Citigroup also fired equity sales traders in Singapore, London and Tokyo before Hong Kong’s Securities and Futures Commission fined the firm HK$348.3 million ($44.8 million) in 2022and reprimanded it for what the regulator called “pervasive dishonest behavior” in the firm’s Asia markets division.
For at least a decade, the SFC said, Citigroup’s traders misrepresented the bank’s own financial interest in stock trades as client interest when they were trying to drum up business. In essence, they had at times indicated there was real customer demand to buy and sell specific stocks when it didn’t exist.
The SFC said the root cause for the misconduct was pressure placed by senior management on traders to grow revenue and increase market share. It said there were deficiencies in Citigroup’s internal controls, compliance and management oversight, and banned Philip Shaw, the bank’s former Head of Pan-Asia Execution Services, from re-entering the industry for 10 years from March 2023. Shaw, who ran the high-touch desk, was among the Hong Kong staffers fired in March 2019.
“You have to question why top management and compliance has not been held accountable, given the apparent failure of oversight at the highest level,” Shaw said when reached by phone. He declined to comment further.
Heyes retired from Citigroup in 2020. The SFC has also made a regulatory decision regarding him, and Heyes is appealing it, according to the Securities and Futures Appeals Tribunal. The details of the decision are not public, and a hearing on the appeal has been scheduled for 2026, according to the SFC’s website. Heyes declined to comment. The SFC declined to comment on individual cases.
Many of the fired Citigroup sales traders have struggled to find new jobs at other large bulge-bracket banks, or accepted positions at smaller brokerages that pay far less than what they previously earned, according to people familiar with the matter. The Hong Kong staffers, including some longtime employees of the bank, also lost the bulk of their retirement benefits when they were terminated, the people said.
“Citi has implemented significant remedial measures to strengthen our compliance and internal controls to address this legacy issue,” a Citigroup spokesman said in response to Bloomberg News queries. He added that the firm has also “invested in key talent” and maintains a market-leading position in Hong Kong equities.
Employment Lawsuits
At least three former Citigroup equity sales traders have filed lawsuits against the bank, accusing it of conducting unfair and hostile internal investigations and scapegoating them after regulators identified the problematic market practices.
Citigroup has disputed those characterizations and maintains that the investigations were conducted in accordance with its policies. The bank earlier said that “where personal conduct did not meet our high standards, we took the appropriate action pursuant to Citi’s procedures, including action against senior staff.”
Around two months ago, Citigroup and one of the fired traders settled a UK employment lawsuit, after a tribunal judge ruled that the trader had been unfairly dismissed.
In Tokyo, a court ruled in July that Citigroup has to compensate a trader it fired in 2020 with pay he would have earned under his employment contract until the time of the judgment. The bank has filed an appeal with the High Court, a spokesperson said.
The outcome of a wrongful dismissal claim filed in Hong Kong by another former Citigroup trader is still pending. The final hearing was held on Wednesday, and a judgment is expected on Dec. 23.
At issue was how Citigroup’s Asia equity sales traders came up with so-called “indications of interest” or IOIs, which are preliminary expressions of trading demand from buyers and sellers in certain stocks. Brokerages compile lists of IOIs and use them as a form of advertising to draw inquiries from potential clients.
Investors typically prefer agency trades — where brokers act as intermediaries to match buyers and sellers — to transactions where the broker is acting as a principal and buying or selling stock from its own account.
Some other banks have run afoul of rules pertaining to IOIs. In 2018, the Asia securities unit of UBS Group AG was disciplined by the SFC for missing client consent records for about half of its facilitation trades, while Citic Securities Co.’s CLSA unit was penalized for failing to prevent the “co-mingling” of agency execution and client facilitation trading. UBS was fined HK$4.5 million, and CLSA was fined HK$9 million, both much smaller penalties than Citigroup’s. In 2016, Morgan Stanley’s Hong Kong unit was reprimanded and fined HK$18.5 million, partly for failing to separate agency execution and principal trading, and for not obtaining client consent for a facilitation trade.
‘Citi 10’
The employment lawsuits against Citigroup detailed some of the inner workings of its Asia equity trading desks during the period in question. The traders who were fired said the practices they were punished for were implicitly condoned by senior management for years.
Sales traders had been under pressure to generate more transactions in ten of Hong Kong’s largest stocks under a “Citi 10”initiative devised by Heyes, according to people familiar with the matter. In a 2018 Bloomberg interview, Heyes had predicted that Citigroup’s Asia equities business would achieve its best results since the financial crisis.
That year, Hong Kong’s SFC conducted an on-site inspection of Citigroup’s Asia markets division, and reviewed trade data and client communication records for some transactions. The regulators found that Citigroup sales traders often tagged IOIs to show client interest in specific stocks when that wasn’t actually the case. After other clients responded to the IOIs, Citigroup’s facilitation desk — which traded with the firm’s money — sometimes would step in to buy or sell stocks to them. Citigroup began conducting its own investigations after the SFC’s inspection.
Ian Weir, who used to be a director on Citigroup’s London Asia-Pacific high-touch desk, was fired in June 2021 for disseminating mislabeled IOIs and for making misrepresentations to institutional clients. He had worked for the bank for 16 years.
At Citigroup, Weir traded for clients in the UK and Europe that transacted in stock markets across Asia. Part of his role included identifying and circulating lists of IOIs.
He told a British employment tribunal that he learned about the process on the job and from more senior colleagues, and that his manager had given him a excel spreadsheet with embedded macros that was used to help generate IOIs for Hong Kong stocks. Weir also told the tribunal that he removed some of the names and posted IOIs that “were supported by a reasonable expectation of interest” from clients.
The bank’s internal questioning of what he did began in September 2019, and he was probed further in March 2020 before being terminated in 2021.
Citigroup told the tribunal that while there was no specific policy in relation to IOIs, Weir “was or should have been aware that posting of IOIs which did not represent genuine client interest was grossly inappropriate.”
In a 25-page document listing the reasons for its judgment, a UK judge said it wasn’t reasonable for Citigroup to conduct an investigation “over such a protracted period.” Citing the lack of training and other findings, it concluded the bank also acted unreasonably in dismissing Weir and that he didn’t commit gross misconduct. Weir has joined another brokerage and relocated to Australia. He did not respond to requests for comment.
Termination Timing
Cindy Lui, a former Citigroup vice-president and sales trader in Hong Kong, worked at the US bank for 12 years after joining the firm as a fresh graduate. She filed a wrongful termination claim with the city’s labor tribunal last year.
In December 2018, not long after the SFC’s inspection, she was interviewed by Citigroup’s legal and compliance team and external lawyers from Clifford Chance for three hours. Lui told the tribunal that she was not given time to prepare, and that prior to the meeting, a manager advised her to be careful with her answers. Three days later, she was suspended.
Citigroup fired Lui in March 2019 after a second interview, and accused her of misrepresenting the nature of trades to one of its clients, making ambiguous statements, and for misleading its investigations team. She received no bonus for 2018 and lost most of the accrued benefits in her corporate retirement savings plan.
Lui told the tribunal that Citigroup provided “erroneous” training and limited guidance on the IOIs categorization and communication with clients. She also told it that there was no enforcement action against her, and she was issued trading licenses for her new roles at other securities firms.
She is seeking pay that she claims Citigroup owes her, plus compensation for the loss of job opportunities as a result of her termination. Lui told the Hong Kong labor tribunal that her salary at the first job she found after being fired was about half of what she got at Citigroup, while her current salary at a Chinese securities firm is also well below what she used to earn.
“Given this is an ongoing case before the courts, we respect the Tribunal and will decline to comment on this specific case,” a Citigroup spokesman said.
More lawsuits could be filed if Lui wins her case, but the window is closing. Hong Kong’s Employment Ordinance requires claims to be filed within six years of an event such as a job termination.
Other fired employees are still smarting from the way they believe they were treated by the bank, according to people familiar with the matter. Besides the equity sales traders, at least two dealers and one facilitation trader in Hong Kong were also terminated, they said.
Firing Aftermath
Three former Citigroup traders, including Lui, have joined Haitong Securities, a Chinese brokerage. One trader who could not find a job in the industry took up a teaching position in Singapore, while four others left Hong Kong, according to people familiar with the matter. One of those could not afford to remain in the city after Citigroup revoked funding for corporate debentures that had enabled the staffer’s children to attend international school, one of the people said.
Another Singapore-based trader was rejected by compliance teams at Oversea-Chinese Banking Corp. and BNP Paribas after going through rounds of interviews, because the person had been fired by Citigroup, according to the individual, who requested anonymity.
“When companies fire entire teams or a significant number of employees, it could be part of a broader strategy to reshape corporate culture,” said Nydia Remolina, an assistant professor of law at Singapore Management University who focuses on financial regulation. She added that such actions, however, do not absolve top executives from regulatory scrutiny or demands for greater accountability.
“Within securities firms, both senior managers and their subordinates bear legal responsibilities to clients, including the obligation to avoid providing misleading information,” Remolina said.
Tom Miller, co-founder and CEO of ClearForce, a people-risk analytics firm based in Vienna, Virginia, said the saga reflects how Citigroup is “spending a lot of their own time and resources, and taking a reputation hit to deal with this problem that happened five years ago.”
He said the takeaway for organizations is how they can put policies and systems in place that will prevent problems from snowballing into bigger issues in the future. “Everything at this point is lessons learned,” Miller added.