Citigroup Global Markets Inc. will pay $1.5 million for supervisory violations relating to its handling of trust funds belonging to cemeteries in Michigan and Tennessee, according to a May 27 announcement by the Financial Industry Regulatory Authority (FINRA). The regulator imposed a $750,000 fine on the firm and demanded disgorgement of another $750,000 in commissions, which will be returned to the cemetery trusts as partial restitution.
In settling these matters, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
The securities regulator found that, from September 2004 through October 2006, Citigroup broker Mark Singer and two of his customers schemed to misappropriate more than $60 million in cemetery trust funds. One of the customers, Clayton Smart, is currently under criminal indictment arising from the scheme in Tennessee and in Michigan. His recent criminal trial in Tennessee ended in a mistrial, but he still faces criminal charges in Indiana. Smart and the second customer, Craig Bush, have been named in civil litigation arising from the scheme.
FINRA's statement said that Smart and Bush were successive owners of a group of Michigan cemeteries from which funds were believed to have been stolen. In August 2004, Smart bought the cemeteries from Bush, using trust funds that had been improperly transferred from the Michigan cemeteries themselves to a company Smart owned. Soon afterward, Smart used additional trust funds to buy cemeteries and funeral homes in Tennessee.
FINRA found that a Citigroup branch manager had recruited Singer from another broker/dealer, where the scheme originated. When Singer began working for Citigroup in September 2004, he brought nearly all of his customer accounts with him, including the cemetery trust accounts and other accounts belonging to Bush. Singer helped Bush and Smart open numerous Citigroup accounts in their own names, as well as in the names of corporate entities they owned or controlled. Singer also helped the two men deposit cemetery trust funds into some of these accounts and then make improper transfers to third parties, sometimes using conduit accounts to mask the transactions. Some of the fund transfers were disguised as fictitious investments made on behalf of the cemeteries.
