Brokers to Settle Pricing Probe

Citigroup Inc., Deutsche Bank, Goldman Sachs Group Inc. and Miller Tabak Roberts Securities agreed to pay a total of $20 million to settle allegations that they overcharged investors for high-yield corporate bonds.

The four firms will pay $5 million each, without admitting or denying wrongdoing, as part of a settlement with NASD, the Washington-based regulator said.

“NASD rules require that firms sell all securities, including corporate high-yield debt, at fair prices,” NASD Vice Chairman Mary Schapiro said in a statement. “NASD markup policy has been clear that markups and markdowns generally should not exceed 5% and, for most debt transactions, that figure should be lower.”

As part of the settlement, Citigroup agreed to pay restitution of $486,000. Deutsche Bank will pay $422,000, Goldman $344,000 and Miller Tabak $182,000, the NASD said.

The NASD, formerly the National Assn. of Securities Dealers, also found that the firms failed to properly supervise their traders and maintain records.

Executives with Citigroup, Deutsche Bank and Goldman said they were satisfied with the agreement and declined to comment further. New York-based Miller Tabak declined to comment.

The trades occurred between mid-2000 and early 2002, the NASD said, and involved high-yield, high-risk debt, or junk bonds.

In one case, Citigroup sold an unidentified 10.36% note maturing in 2012 at 63.5 cents on the dollar, a 32% premium over the price it paid just before the sale, NASD said.

“These trades are riskless because Citigroup was handling both ends of the transaction as opposed to doing just one leg,” said Steve Luparello, NASD’s head of market regulation. “It makes these pricing violations even more egregious.”