On October 2, 2013, in a settlement of administrative enforcement proceedings, Massachusetts Secretary of the Commonwealth William Francis Galvin entered a consent order against CitiGroup Global Markets, Inc. (CGMI) that, among other things, imposed a fine of $30 million against CGMI. The fine, and other remedial actions, were imposed as a result of findings by the Secretary that CGMI had violated provisions of the Massachusetts Securities Act in connection with the selective disclosure of research views ahead of publication. Secretary Galvin oversees the administration and enforcement of the Massachusetts Securities Act. Without admitting or denying the Secretary’s legal conclusions, CGMI consented to findings of fact regarding the advance disclosure of confidential, unpublished research information. The Secretary claimed that by its conduct, CGMI violated its own policies and procedures, federal and state securities laws, and the provisions of an earlier Consent Order. His action, national in scope and impact, was taken under the broad enforcement authority granted under the Massachusetts Securities Act relating to practices in the securities business.
Although certain historic powers of state securities regulators to act under “Blue Sky” laws have in recent years been pre-empted by federal securities laws, by design, the authority of state regulators over market intermediaries such as securities broker-dealers is largely unfettered, both as to licensing and enforcement powers. This enforcement authority extends to broad prohibitions contained in state securities laws and regulations dealing with dishonest and unethical practices in the securities business. This latest Massachusetts enforcement action against CGMI, based on alleged violations of just such rules, illustrates the extent to which state securities regulators remain a potent force, possessed of ample statutory tools for pursuing investor protection goals and fairness in markets. The scope of the Massachusetts enforcement action involving CGMI, and the size of the $30 million fine imposed present a clear reminder that securities regulation in the United States remains a dual federal/state structure, and that state regulators can, and will, act aggressively in regard to the integrity of markets and conduct of those who play important roles in making them work.