U.S. securities regulators may recommend enforcement action against the former head of Citigroup Global Investment Management (search) for his role in activities under investigation at the company's mutual fund unit, the No. 1 financial services firm said on Friday.

The Securities and Exchange Commission (search) staff told former Citigroup Inc. (C) manager Thomas Jones, another former employee and a current employee that enforcement action is being considered in connection with a probe the company disclosed last November.

Citigroup's latest black eye comes as it attempts to recover from other regulatory problems including a run-in with Tokyo regulators who said it misled clients in a series of private bond sales. The company's European operation also had to apologize for a government debt trade that roiled markets.

In what is sometimes referred to as a "Wells Notice (search)," the SEC is looking at the "creation and operation of an internal transfer agent unit to serve primarily the Smith Barney family of funds."

Other details were not provided in the Friday filing.

Citigroup said last November that federal prosecutors were investigating its mutual fund unit over its relationship with a transfer agent services provider and the company expressed "regret" over what it termed "errors" in the relationship.

At that time, Jones said in a memo to senior management that the bank is reimbursing $16 million plus interest to the mutual funds run by the asset management unit.

Jones wrote, "as we currently understand the facts," New York-based Citigroup received the funds under a "revenue transfer agreement" with a subcontractor, which he did not name. He said the bank plans to independently review its transfer fee structure.

The news follows Citigroup Inc.'s announcement in a memo earlier this week that three top executives, including Jones, Vice Chairman Deryck Maughan and private bank chief Peter Scaturro are leaving the financial services giant in the wake of a scandal at its Japanese private banking unit.

"Neither the Wells Notice nor the underlying investigation had anything to do with Tom's leaving the Company," said Citigroup Chief Operating Officer Bob Willumstad in a memo to the management committee obtained by Reuters on Friday.

The resignations come after Citigroup Chief Executive Charles "Chuck" Prince, a lawyer who rose to the top job last year, promised to rid the company of regulatory problems and improve its reputation.

Jones had been chairman and CEO of Salomon Smith Barney Asset Management before joining Citigroup.

The company did not name the employee or former employee in its regulatory filing on Friday.

Citigroup declined to comment beyond the filing.