Software bug costs Citigroup $7m after legit transactions mistaken for test data for 15 years

10B or not 10B, that is the question


A programming blunder in its reporting software has led to Citigroup being fined $7m (£5m).

According to the US Securities and Exchange Commission (SEC), that error [PDF] resulted in the financial regulator being sent incomplete "blue sheet" information for a remarkable 15 years – from May 1999 to April 2014.

The mistake was discovered by Citigroup itself when it was asked to send a large but precise chunk of trading data to the SEC in April 2014 and asked its technical support team to help identify which internal ID numbers they should run a request on.

That team quickly noticed that some branches' trades were not being included in the automated system and alerted those above them. Four days later a patch was in place, but it wasn't until eight months later that the company received a formal report noting that the error had affected SEC reports going back more than a decade. The next month, January 2015, Citigroup fessed up to the SEC.

The error

It turned out that the error was a result of how the company introduced new alphanumeric branch codes.

When the system was introduced in the mid-1990s, the program code filtered out any transactions that were given three-digit branch codes from 089 to 100 and used those prefixes for testing purposes.

But in 1998, the company started using alphanumeric branch codes as it expanded its business. Among them were the codes 10B, 10C and so on, which the system treated as being within the excluded range, and so their transactions were removed from any reports sent to the SEC.

The SEC routinely sends requests to financial institutions asking them to send all details on transactions between specific dates as a way of checking that nothing untoward is going on. The coding error had resulted in Citigroup failing to send information on 26,810 transactions in over 2,300 such requests.

The SEC was not impressed and said in a statement announcing the fine that the "failure to discover the coding error and to produce the missing data for many years potentially impacted numerous Commission investigations."

"Broker-dealers have a core responsibility to promptly provide the SEC with accurate and complete trading data for us to analyze during enforcement investigations," said Robert Cohen, co-chief of the SEC enforcement division’s market abuse unit. "Citigroup did not live up to that responsibility for an inexcusably long period of time, and it must pay the largest penalty to date for blue sheet violations." ®


Other stories you might like

  • Musk can't tweet about Tesla without lawyer approval – and he's still fighting to end that
    By free speech, he means freedom to flip the bird at the SEC

    Elon Musk still hopes to quash a 2018 settlement agreement with the SEC requiring Tesla-related tweets to be approved by a lawyer before he can post them: on Wednesday, he took his case to the US Court of Appeals after a lower court denied this request.

    The Tesla CEO landed himself in hot water with the watchdog when he tweeted he was thinking of taking the company private at $420 a share, and claimed to have already secured the necessary funding (sound familiar?) In reality, however, Musk did not have the funding or approval to do so. Investors, however, took him seriously and they started buying more shares, bumping up the stock price over 10 per cent.

    The SEC accused Musk of fraud, saying his tweets were false and misled the public and caused disruption in the market. Musk was sued by the US regulator; he later settled the lawsuit by agreeing to pay $40 million in penalties, step down as chairman of the automaker's board, and accepted that any tweets discussing Tesla would have to be screened from now on.

    Continue reading
  • Musk repeats threat to end $46.5bn Twitter deal – with lawyers, not just tweets
    Right as Texas AG sticks his oar in

    Elon Musk is prepared to terminate his takeover of Twitter, reiterating his claim that the social media biz is covering up the number of spam and fake bot accounts on the site, lawyers representing the Tesla CEO said on Monday.

    Musk offered to acquire Twitter for $54.20 per share in an all-cash deal worth over $44 billion in April. Twitter's board members resisted his attempt to take the company private but eventually accepted the deal. Musk then sold $8.4 billion worth of his Tesla shares, secured another $7.14 billion from investors to try and collect the $21 billion he promised to front himself. Tesla's stock price has been falling since this saga began while Twitter shares gained and then tailed downward.

    Morgan Stanley, Bank of America, Barclays, and others promised to loan the remaining $25.5 billion from via debt financing. The takeover appeared imminent as rumors swirled over how Musk wanted to make Twitter profitable and take it public again in a future IPO. But the tech billionaire got cold feet and started backing away from the deal last month, claiming it couldn't go forward unless Twitter proved fake accounts make up less than five per cent of all users – a stat Twitter claimed and Musk believes is higher.

    Continue reading
  • SEC probes Musk for not properly disclosing Twitter stake
    Meanwhile, social network's board rejects resignation of one its directors

    America's financial watchdog is investigating whether Elon Musk adequately disclosed his purchase of Twitter shares last month, just as his bid to take over the social media company hangs in the balance. 

    A letter [PDF] from the SEC addressed to the tech billionaire said he "[did] not appear" to have filed the proper form detailing his 9.2 percent stake in Twitter "required 10 days from the date of acquisition," and asked him to provide more information. Musk's shares made him one of Twitter's largest shareholders. The letter is dated April 4, and was shared this week by the regulator.

    Musk quickly moved to try and buy the whole company outright in a deal initially worth over $44 billion. Musk sold a chunk of his shares in Tesla worth $8.4 billion and bagged another $7.14 billion from investors to help finance the $21 billion he promised to put forward for the deal. The remaining $25.5 billion bill was secured via debt financing by Morgan Stanley, Bank of America, Barclays, and others. But the takeover is not going smoothly.

    Continue reading

Biting the hand that feeds IT © 1998–2022