Fake Stock Ratings: Citigroup fined for 5 years of false recommendations

Citigroup Global Markets Inc (Citi) displayed wrong ratings on stocks for almost five years, according to a statement just published by the Financial Industry Regulatory Authority (FINRA). This news highlights why TipRanks’ goal of bringing transparency and accountability to the financial markets is so important.

Sometimes the bank showed stocks as ‘Sell’ when really it meant ‘Buy’ or vice versa. It also displayed made-up ratings for securities that the bank did not in fact cover or failed to show ratings for stocks that it did cover.

Even more worryingly, these inaccurate research ratings covered more than 1,800 equity securities. This accounts for about 38% of all stocks covered by the firm.

According to FINRA, the ‘fake’ ratings occurred from February 2011 to December 2015 and appeared on account statements, emails and an online portal. The errors harmed customers who relied on the ratings as well as the bank’s own brokers and supervisors.

FINRA has now ordered the bank to pay $11.5 million. This amount consists of a $5.5 million fine and $6 million compensation to retail customers.

“The display and use of incomplete and inaccurate research ratings can have widespread, adverse consequences to customers” said Susan Schroeder, head of enforcement at FINRA on December 28. “Even when such inaccuracies are caused by technology problems, firms should react quickly to address those errors.”

In this case, the errors came from problems with an electronic data feed provided to a clearing firm. Notably, FINRA points out that the errors were not fixed despite ‘numerous red flags.’

After self-reporting the issue, Citigroup settled the matter without admitting or denying the charges.

The role of TipRanks: know who to trust

TipRanks was created with the explicit purpose of holding financial experts accountable. It is important to us that individual investors know who to follow when making critical stock decisions. We aim to alleviate some of the concerns about untrustworthy stock recommendations by showing investors which experts make the best stock recommendations time and time again. We use an unbiased, objective system to rank experts. This is how individual investors can outsmart the market even in the face of misleading stock ratings.

TipRanks also tries to ensure that investors are not overly reliant on the advice of one financial expert and can instead assess the whole market outlook on a specific stock. By tracking a stock’s top analyst consensus rating and average analyst price target, as well as monitoring the transactions of corporate insiders and even hedge fund managers, investors can quickly and easily discover the full stock picture.

Discover the Top 25 analysts on Wall Street now>>

How does this apply to specific stock ratings?

We looked for a recent Citigroup rating on TipRank’s Daily Analyst Ratings tool. The tool pulled up a buy rating for Portola Pharma (NASDAQ:PTLA) by four-star Citi analyst Yigal Nochomovitz:

Clicking on the analyst profile enables us to examine his track record in more detail. Crucially, we can see his rating performance overall and on Portola Pharma specifically. As you can see from the screenshot his ranking is relatively encouraging at #1000 out of 4,727 analysts.

As for Portola, we can see that he scores a 63% success rate and a relatively high average return of 18.5% across his 8 PTLA ratings this year. Plus we can see that he has a fairly consistent track record of reiterating Buy ratings on PTLA stock.

For further reassurance, it’s also worth checking out the stock analysis page. Portola turns out to be a ‘Strong Buy’ stock with only buy ratings from analysts in the last three months. The stock’s positive Street consensus and sizable upside potential (53%) show that the bullish outlook is echoed by all the recent ratings.

Don’t rely on just one rating: Find out what the Street’s best analysts say about your stocks now 

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