FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton “Bud” Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

The FINRA arbitration panel’s ruling this week includes over $1 million for the couple’s real estate investment losses and $2.1 million for the couple’s portion of the $10 million judgment. Should the Madhanys have to pay the entire $10 million amount, Citigroup will have to pay them back.

Selling Away
The securities industry prohibits selling away, which is a practice involving advisors promoting investments privately without their firm’s knowledge. Brokerage firms can be held liable when a broker engages in “selling away.”

Our securities lawyers represent investors that have lost their investments because of selling away, elder financial fraud, and other types of securities fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask to speak with one of our FINRA arbitration lawyers.

Citigroup must pay couple $3.1 million for not overseeing broker: panel, Reuters, September 16, 2013

Orlando couple win $3.1M award from Citigroup Global, Orlando Sentinel, September 17, 2013

More Blog Posts:
Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013
Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013