Citigroup Inc. (C), the third-biggest U.S. bank, agreed to pay $3.5 million to resolve regulatory claims that it gave investors inaccurate data for subprime mortgage-backed securities as the housing market collapsed.

The bank posted incorrect information for three residential mortgage-backed securities, or RMBS, from January 2006 through October 2007, and it remained on Citigroup’s website until this month, the Financial Industry Regulatory Authority said today in a statement. The firm failed to correct the data even after the errors were brought to its attention, said Finra, the brokerage industry’s self-regulator.

Chief Executive Officer Vikram Pandit is dealing with mounting costs from Citigroup’s conduct in the U.S. mortgage market. The lender agreed to pay $158.3 million in February after regulators alleged the firm had falsely declared some loans fit for a federal insurance program. The bank must also pay $2.2 billion as part of a $25 billion, 49-state settlement between attorneys general and the biggest mortgage lenders, after a nationwide probe into shoddy foreclosure practices.

“Citigroup posted data for its RMBS deals that it should have known was inaccurate; and even after they learned the data was inaccurate, Citigroup did not correct the problem until years later,” Brad Bennett, Finra’s enforcement chief, said in the statement. “For over six years, investors potentially used faulty data to assess the value of the RMBS.”

Lacked Procedures

RMBS issuers are required to disclose historical performance data for securities similar to those they are offering. That information is critical for investors to assess whether future returns may be disrupted by mortgage holders failing to make loan payments, Finra said in its statement.

The brokerage lacked procedures to verify the pricing of the securities and didn’t sufficiently document steps taken to assess whether the traders’ prices were reasonable, Finra said. The unit also failed to keep proper records following margin calls that prompted revisions in the prices, according to the Washington-based regulator.

Citigroup settled the claims without admitting or denying wrongdoing, Finra said. “We are pleased to put this matter behind us,” Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, said in a statement.

Securitized Markets

Jeffrey Perlowitz and Mark Tsesarsky run Citigroup’s securitized markets business. They report to Francisco “Paco” Ybarra, who oversees the bank’s trading businesses.

Other financial firms have paid penalties for similar alleged offenses. Finra fined Barclays Plc (BARC) $3 million in December for “misrepresenting” the delinquency rates for three RMBS between March 2007 and December 2010. The watchdog fined Credit Suisse Group AG $4.5 million and Bank of America Corp.’s Merrill Lynch unit $3 million in May 2011 for also using flawed delinquency data, records show.

Finra fined Deutsche Bank AG $7.5 million in July 2010 for “negligently misrepresenting delinquency data” tied to six subprime RMBS issued in 2006, the records show.

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net