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Citi Analyst’s Ability To Follow Law Was Consistently Strong, At Times Exemplary, At Other Times Not So MuchBy Matt Levine
Citi today fired Mark Mahaney, its internet analyst, and was fined by Massachusetts securities regulators, for sending dumb emails to reporters. The Massachusetts consent order is here. Mahaney’s main misconduct1 is that on April 30 of this year a French reporter asked him about Google’s YouTube business:
- Do you think that YouTube has been above your Total Net Revenue estimate 2011 ($876M)
- Do you think that YouTube will be above your Total Net Revenue estimate 2012 ($1119m)
- Do you think that they are largely profitable?
And Mahaney replied “Yes Yes Yes.” This was problematic because:
The information that [Mahaney] gave to the French Reporter had not been previously published. [He] had published a research report on Google, Inc. on March 21, 2012 and did not publish another research report until his interview with “All Things Digital” on June 21, 2012.
Two thought experiments. First, Mark Mahaney’s job was to drum up institutional business by producing actionable estimates and opinions about the stocks he covered. One way to do this is to publish research reports. Google, it is fair to say, is an important stock that he covered. He did not publish any research reports on Google for three months this year. What do you think he was doing during that time? Your choices are:
- Mostly focusing on other things that were not the biggest company he covered.
- Mostly emailing his thoughts to reporters for publication in French trade magazines.
- Mostly giving his thoughts to Citi trading clients via phone calls and in-person meetings.
I hope that question kind of answers itself? Mahaney answered the reporter’s questions about YouTube revenues pretty much instantly2; Citi PR had been copied on the email and by the time they told him not to answer he already had. The guy was servicey. To a reporter writing for a French monthly magazine. It’s possible that when major hedge fund clients called him and asked “do you think YouTube will beat your revenue estimate from a month ago?” he said “sorry, can’t answer that, read my stale report, I’ll have more for you in two months.” Except it is not actually possible.
What do you conclude from this thought experiment? Was this disclosure material? I have no idea and don’t care; I have my own biases about research analyst estimates of revenues at divisions of widely followed public companies but those don’t concern you. If it wasn’t material, though, why fine Citi and fire Mahaney for it? If it was … why is the email disclosure to the press the issue?
Anyway, also: This is a thing that happened after those emails:
During his 2012 Mid-Year review, Senior Analyst received a performance rating concerning, among other things, his “Adherence to Dept. Guidelines,” of between “consistently sets new standards and is truly exemplary” and “consistently strong and at times exemplary.”
We talked earlier about Citi and the general equilibrium of puffery. Imagine that instead of a performance evaluation for compliance that includes options like “finds new things to comply with that we didn’t even know a person could comply with,” Citi’s review form had these four options:
- Never breaks the law
- Sometimes breaks the law
- Often breaks the law
- Always breaks the law
Then I guess Mahaney would also have scored somewhere between the best and second-best categories? Exactly like he did? Only instead of that obviously being worrying, the actual evaluation made him sound like he was doing great. That evaluation seems to be part of Massachusetts’s “failure to supervise” case against Citi; I guess if he had been evaluated as “needs improvement in the not-law-breaking category” they’d have a strong defense. The culture of puffery has caught up to Citi fast.
In the Matter of: Citigroup Global Markets Inc. [Mass. Securities Division]
Amateurish E-mail Mistakes Cost Citigroup Analyst/Assistant Pair Their Jobs [DI / Kevin Roose]
Mahaney’s Email: ‘This Could Get Me Into Trouble. Shoot’ [Deal Journal]
1. Also, before the Facebook IPO, Mahaney’s junior analyst extensively discussed his draft initiating-coverage report on Facebook with his college friends who were reporters at TechCrunch, in violation of law and NDA and common sense and really just everything. Using his Citi email account. This is important: when you send things to Dealbreaker that you’re not supposed to be sending to Dealbreaker, use Gmail. Or text! Or put on a trenchcoat and meet us in a dark alley. We worry about you guys, you know. Be safe.
2. Actually even faster; per the consent order the reporter asked the questions at 6:23pm on April 30 and Mahaney answered at 3:24pm. I suppose that’s time zones though it’s not made clear. Perhaps he just anticipates clients’ needs.