Citigroup Pays Fine and Fires Analysts Over Facebook I.P.O.

Citigroup paid a $2 million fine and fired two employees after authorities accused the bank of improperly disclosing confidential information to media outlets about YouTube's earnings and Facebook‘s initial public offering.

William Galvin, the Massachusetts Secretary of the Commonwealth, accused a junior analyst of leaking nonpublic information about Facebook to TechCrunch, a blog focused on the technology world. The information included Citigroup's unpublished revenue estimates for Facebook, as well as “Investment Risks” and “Investment Positives.”

“We are pleased to have this matter resolved,” a Citigroup spokeswoman said in a statement. “We take our internal policies and procedures very seriously and have taken the appropriate actions.”

Citigroup fired the junior analyst in September, according to Mr. Galvin's order. The bank also terminated his boss, according to a person briefed on the matter. The boss did not leak the information b ut was blamed for not thwarting the illegal activity. The leaked information also came from the senior analyst's research.

While Mr. Galvin did not disclose the name of the analysts, referring to them in a legal order as “senior” and “junior,” he did disclose revealing details. The senior analyst, according to public documents and a person briefed on the matter, is Mark Mahaney, a crucial member of the bank's San Francisco-based technology research team.

Mr. Galvin's order separately took aim at Mr. Mahaney for discussing YouTube's earnings with a French magazine reporter without permission from Citigroup. The discussion with Capital Magazine did not appear to violate any securities rules, but rather conflicted with Citigroup's policy that research analysts receive internal approval before talking to reporters.

Mr. Galvin also cited past problems in which Citigroup rebuked Mr. Mahaney for conducting an interview with Bloomberg on a company he did n ot cover. On another occasion this year, Mr. Galvin said, Citigroup cited Mr. Mahaney for not receiving approval before an interview.

Under Mr. Galvin's order, the main legal violations stemmed from the disclosure of Facebook information.

Under securities rules and a non-disclosure agreement with Facebook, Citigroup analysts were banned from “disseminating written research” about the social networking giant until 40 days after the I.P.O. The restriction, which applied to all banks that helped take Facebook public in May, was created to prevent research analysts from improperly promoting companies in a bid to drum up business for bankers.

The rules were reinforced in a landmark 2003 settlement with several banks, including Citigroup. The case, led by former New York Attorney General Eliot Spitzer, built a Chinese wall between Wall Street research analysts and investment bankers.