Citigroup Fires Tech Analysts Over Facebook I.P.O. Leaks

Citigroup paid a $2 million fine and fired a prominent employee after authorities accused the bank of improperly leaking to the media unpublished information about YouTube and confidential research on Facebook‘s initial public offering.

William F. Galvin, the Massachusetts secretary of the commonwealth, accused a junior analyst of sharing nonpublic research about Facebook to TechCrunch, a blog focused on the technology world. The information included Citigroup's private revenue estimates for Facebook, as well as “Investment Risks” and “Investment Positives.”

Citigroup fired the junior analyst in September, according to Mr. Galvin's order. In a more surprising move, the bank on Friday also terminated his boss, Mark Mahaney, according to a person briefed on the matter.

“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 app ropriate actions.”

Mr. Mahaney, a star analyst who covered the recent wave of technology I.P.O.s for Citigroup's San Francisco research team, was not accused of any legal wrongdoing. While the information came from his research, the leak came solely from the junior analyst.

Mr. Mahaney was, however, blamed for not thwarting the illegal activity. Mr. Galvin did not disclose the name of the junior analyst.

Mr. Galvin's order took aim separately at Mr. Mahaney for discussing YouTube's earnings with a reporter from a French magazine, Capital, without permission from Citigroup. The discussion with the magazine did not appear to violate any securities rules, but conflicted with Citigroup's policy that research analysts receive internal approval before talking to reporters. The bank, like most Wall Street firms, further prevents analysts from expressing a viewpoint on a company unless it is published in a report.

Ultimately, the decision to fire Mr. Mahane y had less to do with a breach of arcane compliance rules than his perceived coverup, the person briefed in the matter said.

The French reporter approached Mr. Mahaney in April seeking projections about YouTube's revenue and earnings growth, information that Citigroup had not yet published in a report. Mr. Mahaney gave a terse e-mail reply that answered the essence of the reporter's questions.

But when a bank spokeswoman followed-up to remind Mr. Mahaney about seeking approval before an interview, he denied ever emailing the reporter. “I won't respond,” he said, according to Mr. Galvin's order.

When the reporter informed Citigroup that Mr. Mahaney did in fact respond, the coverup allegedly continued. Mr. Mahaney, according to Mr. Galvin's order, asked bank employees to fudge the timing of the interview.

When told that the accurate time was already submitted, he replied, “This could get me into trouble. Shoot.”

Mr. Galvin also cited past problems in which Citigroup rebuked Mr. Mahaney for grating a February interview to Bloomberg Radio about Facebook before he officially covered the company. On another occasion this year, Mr. Galvin said, Citigroup cited Mr. Mahaney for not receiving approval before going on Canadian television.

Despite the focus on Mr. Mahaney, Mr. Galvin did not pin any illegal acts on the senior analyst, who was with the bank since 2005. The only legal violations stemmed from the disclosure of Facebook information.

In May, the junior Citigroup analyst e-mailed two TechCrunch employees to say “I am ramping up coverage of FB and thought you guys might like to see how the street is thinking about it (and our estimates).” He attached a “Facebook one pager,” that featured an array of confiodential information, including Mr. Mahaney private revenue estimates meant as internal guide for the bank's analysts.

Under securities rules and a nondisclosure agreement with Faceb ook, 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 a former New York attorney general, Eliot Spitzer, built a Chinese wall between Wall Street research analysts and investment bankers.

A TechCrunch employee sought to post the document on the Web, but the junior analyst balked.

“My boss would eat me alive,” he said.