Business

Analysts button their lips in wake of Citi firing

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Wall Street analysts are getting reined in again.

Citigroup’s firing yesterday of a star analyst accused of leaking confidential information to the media rippled through research departments and served as a stark reminder of the disclosure rules imposed on banks.

Citi paid a $2 million fine and fired top analyst Mark Mahaney along with an underling accused of leaking confidential research on Facebook’s public offering to the press.

Mahaney was faulted for failing to keep one of his junior analysts in check. Eric Jacobs was fired Sept. 27 for sending non-public research on Facebook to reporters at TechCrunch prior to the social network’s initial public offering on May 18.

William Galvin, the top securities regulator for Massachusetts who levied the $2 million fine, also said Mahaney discussed unpublished revenue estimates for YouTube with a reporter from French magazine Capital without the bank’s permission and subsequently tried to cover it up.

“This penalty should serve as a warning to the industry as a whole,” Galvin said in a statement.

The Massachusetts case stands as one of the tougher punishments in the research realm since 2003, when then-New York Attorney General Eliot Spitzer struck a global settlement with the largest banks over analysts’ conflicts.

An all-star analyst who had garnered Institutional Investor’s coveted No. 1 ranking in tech for five years in a row, Mahaney helped Citi grab a piece of blockbuster IPOs such as Facebook.

Regulators are also scrutinizing whether select investors received non-public research about Facebook’s market debut before regular investors.

Galvin has subpoenaed the lead underwriters on the Facebook IPO — Morgan Stanley, Goldman Sachs and JPMorgan — to determine whether analysts improperly disseminated research.

“It is essential in these times of rapid and diffuse means of communications financial institutions be vigilant to ensure that the rules on IPOs are observed by all their personnel,” according to Galvin.

Sources said that Mahaney’s coverage is being taken over by another senior analyst, Neil Doshi, who primarily covers electronic gaming stocks including Electronic Arts.

Citi is also mulling dropping coverage of Facebook and other companies Mahaney covered, sources said.

A Citi spokeswoman declined to comment other than to say, “We take our internal policies and procedures very seriously and have taken the appropriate actions.”

In the wake of Mahaney’s firing, leaders in Citi’s research department called a conference to underscore the rules for research disclosures and getting approvals for media interviews.

“It too often happens that people are sloppy about who they talk [to],” said Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance.

“The problem with situations like that where you have confidential information, at a certain point it starts to lapse into insider trading and people providing insider information,” she added.