Articles Posted in Citigroup

Citigroup Woes Continue With FINRA Order to Pay Financial Adviser Team $24M Over Inadequate Compensation

Published on: January 28, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel wants Citigroup to pay financial advisor siblings Robert Vincent Minchello and James Bryan Minchello, as well as administrator Martha Jane Sullivan, $24 million. The claimants, who were formerly employed by the financial firm, contend that they did not receive fair compensation for transactions involving an institutional investor client.

Prior to working for Citigroup they were with Banc of America Securities. When they landed at Citi, they brought a number of institutional investors with them. Transactions that the brothers conducted with one the clients, a technology incubator that at the time they already had a 10-year working relationship with, is at the center of the dispute with Citigroup.

The Claimants contend that Citi only partially paid them on a few of the initial transactions and then removed them from relationship with the client while refusing to compensate them for subsequent transactions. After leaving the financial firm in 2009 they submitted an arbitration claim with Citigroup. They had wanted $156.1 million in punitive damages and interest, as well as $78 million in compensatory damages ( and attorneys’ fees and other costs).

The FINRA panel awarded the team about $24 million for compensatory damages and 6% yearly interest for the period of December 15, 2004 through January 13, 2012. Citi must also pay the advisors $1M in sanctions. The Claimants’ securities fraud attorney says the award seem to be a “rebuke” of the practice that some investment banks engage in of not paying advisors that connect them with lucrative transactions or clients. The brothers and Sullivan are now with JP Morgan Securities LLC.

As you can read about in some of our recent blog posts, Citigroup has come under fire a lot recently over alleged violations. FINRA just fined Citigroup Global Markets $725,000 for allegedly failing to disclose certain conflicts of interest in its research reports and during research analyst public appearances. In December 2011, a judge turned down Citigroup’s request to have a $54.1M arbitration award against it overturned. That FINRA award was over Citigroup’s alleged failure to disclose to investors the risks involved in putting their money in municipal bonds.

Of course, there is also the $285 million settlement reached between Citigroup and the Securities and Exchange Commission that US District Judge Jed S. Rakoff has refused to approve. Instead, he ordered both parties to court to resolve this matter. The SEC as the housing market was collapsing in 2007, Citigroup sold Class V Funding III and then betting against the $1B mortgage-linked CDO. Clients were not told about this conflict and investors eventually lost almost $700 million. Meantime, the financial firm made approximately $160 million.

Boston financial advisors and assistant win $24 million in arbitration, Boston, January 23, 2012

Citigroup Ordered To Pay Advisor Team $24M in Arbitration Dispute, OnWallStreet, January 24, 2012

More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors, Stockbroker Fraud Blog, January 21, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors

Published on: January 21, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Last month, a US judge refused Citigroup‘s request to overturn a $54.1M arbitration award that a Financial Industry Regulatory Authority arbitration panel had ordered the financial firm to pay investors Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital. The award was the largest amount ever granted to individuals in a securities arbitration proceeding.

Following Citigroup’s request that a United States district court toss out the award, details from what were confidential proceedings have been unsealed. According to the New York Times, documents viewed by the arbitrators show that on a scale of 1 to 5, with 5 signifying the highest risk (usually only assigned to products that potentially carried the risk of an investor losing everything), Citigroup rated these investments as having a 5 rating for risk. Is it no wonder then that investors could and would go on to lose 80% of what they had investments.

The investments, which were municipal arbitrage portfolios, are known as ASTA/MAT. Citigroup Global Markets sold them through MAT Finance LLC.

Per internal e-mails, after the investments began declining in value in early 2008, when Citigroup wealth management head Sallie Krawcheck asked for the MAT’s risk rating,” She was told that it was “3-5.” Also, customers were never told about the 5 rating that their investments were previously given. The Times also reported that during a conference call involving brokers whose clients had sustained losses, the portfolio manager was directed to not discuss internal guidelines, which contained different information than what was in the prospectus that investors had received.

Citigroup eventually would offer to buy back the investments at a discount price but only if investors agreed to not file a securities fraud lawsuit against the financial firm. (Brokers have said they felt pressured by Citigroup to get investors on board with this. For example, a memo with the heading “Fund Rescue Options “noted that if the broker’s client let Citigroup repurchase the instruments, this would not be noted in his/her U-5 regulatory record. If, however, the client chose to sue, then this would appear in the broker’s U-5.)

In their securities fraud case, Claimants accused Citigroup of failure to supervise, fraud, and unsuitability. After the FINRA arbitration panel ordered them to pay the investors, Citigroup argued that panel members had ignored the law and contended that despite verbal statements made to investors, the latter had signed agreements acknowledging that the risk of losing everything was a possibility. Judge Christine Arguello would go on to affirm the FINRA panel’s decision. While the majority of the award was compensation for the claimants’ investment losses, about $17 million was for punitive damages.

Secrets of a Sales Machine, NY Times, January 14, 2012
Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT/ASTA Case, Forbes, April 12, 2011

More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011
Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest, Stockbroker Fraud Blog, January 20, 2012
Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2012 Continue Reading ›

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest

Published on: January 20, 2012 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says that Citigroup Global Markets will pay a fine of $725K for not disclosing specific conflicts of interest during public appearances made by research analysts and in research reports. By settling, Citigroup is not denying or admitting to the charges although it has, however, consented to an entry of the findings.

According to the SRO, in research reports published between 1/07 and 3/10, the financial firm did not disclose possible conflicts of interest that existed in certain business connections, including the facts that the financial firm and its affiliates:
• Received revenue or investment banking from certain companies • Had an at least 1% or more ownership in companies that were covered • Managed public securities offerings • Made a market in certain covered companies’ securities
Also, FINRA says that Citigroup research analysts did not reveal these same conflicts when bringing up the covered companies during public appearances.

As a result of these alleged failures to disclose, FINRA contends that Citigroup kept investors from knowing of possible biases in the research recommendations that it made. FINRA says that such disclosures are essential in order to make sure that investors are given all of the information they need when making decisions about investments.

The SRO said that the reason Citigroup did not provide the required information is that the database for identifying and creating disclosures experienced technical difficulties and/or was inaccurate. FINRA also cites a lack of proper supervisory procedures that could have prevented such inaccuracies and disclosure failures. However, Citigroup did self-report a number of the deficiencies and has taken remedial steps to remedy them.

A financial firm can be held liable when failure to disclose key facts about an investment leads to an investor sustaining financial losses. In many instances, such omissions are made to hide or diminish the risk involved in the investment. While some omissions are intentional, others can occur due to inadequate supervision or the lack of proper systems and procedures to make sure such failures to disclose don’t happen.

It is a broker’s obligation to fairly disclose all the risks involved in a potential investment. (Misrepresenting material facts is another way that risks are concealed and investors end up losing money.

It doesn’t matter whether malicious intent was involved. If a broker-dealer concealed OR failed to disclose key information related to your investment and you suffered financial losses on your investment, you may have a securities fraud case on your hands that could allow you to recover your losses.

Citi settles with Finra over alleged conflicts at its brokerage, Investment News, January 20, 2012
Finra Fines Citigroup $725,000 For Alleged Research Violations, The Wall Street Journal, January 18, 2012
Financial Industry Regulatory Authority

More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011
Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011
Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010 Continue Reading ›

Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge

Published on: December 27, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A US judge has denied Citigroup’s request that the $54.1M Financial Industry Regulatory Authority arbitration award issued to investors that sustained losses in municipal bond funds be overturned. This is one of the largest securities arbitration awards that a broker-dealer has been ordered to pay individual investors. Brush Creek Capital, retired lawyer Gerald D. Hosier, and investor Jerry Murdock Jr. are the award’s recipients. However, these Claimants are not the only investors to come forward contending that they were told the funds were suitable for investors that wanted to preserve their capital.

The investor losses were related to several leveraged municipal bond arbitrage funds that saw their value significantly drop between 2007 and 2008. Citigroup Global Markets had sold the municipal bond funds through MAT Finance LLC. Proceeds were invested in longer-term muni bunds while borrowing took place at low, short-term rates. The strategy proved to be unsuccessful, resulting in investors losing up to 80% of their money.

According to The Wall Street Journal, when it issued its ruling the arbitration panel appeared to reject three defenses that financial firms usually make:

• The financial crisis, and not the financial firm, is to blame for the losses.
• Sophisticated, rich investors should have known what risks were involved.
• The prospectus had warned in advance that investors could lose everything.

The Claimants alleged fraud, failure to supervise, and unsuitability. They had sought no less than $48 million in compensatory damages, fees, lost-opportunity costs, commission, lawyers’ fees, and interest.

The FINRA arbitration panel awarded $21.6 million in compensatory damages, plus 8% per annum, to Hosier, $3.9 million in compensatory damages, plus 8% per annum, to Murdock, Jr, and $8.4 million in compensatory damages, plus 8% per annum, to Brush Creek Capital LLC.

All Claimants were also awarded $3 million in lawyers’ fees, $17 million in punitive damages, $33,500 in expert witness fees, $13,168 in court reporter expenses, and $600 for the Claimant’s filing fee.

Following the FINRA ruling, Citigroup contended that the arbitration panel had ignored the law when arriving at the award. The brokerage firm also claimed that investors could not have depended on verbal statements that the financial firm had expressed about purchases because the clients had acknowledged through signed agreements that they could lose everything they invested. By denying Citigroup’s request to throw out the arbitration award, Judge Christine Arguello, however, said that the court found Citigroup’s “argument wholly unpersuasive.”

A Crack in Wall Street’s Defenses, New York Times, April 24, 2011

Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT / ASTA Case, Municipal Bond, April 12, 2011

Citigroup loses suit to overturn $54-million ruling, Reuters, December 22, 2011

More Blog Posts:
JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff

Published on: November 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Jed S. Rakoff has turned down the proposed $285M settlement between the SEC and Citigroup Global Markets Inc. However, unlike with the SEC’s tentative $33M settlement with Bank of America that he rejected, eventually approving a $150 million settlement between both parties-this time, Rakoff is ordering the SEC and Citigroup to trial.

The SEC claimed Citigroup sold Class V Funding III right as the housing market fell apart in 2007 and then bet against the $1 billion mortgage-linked collateralized debt obligation. Meantime, the financial firm allegedly failed to tell clients about this conflict of interest. Investors would go on to lose nearly $700 million over the CDO, while Citigroup ended up making about $160 million.

To many observers, Rakoff’s decision doesn’t come as a surprise. He has expressed concern with the SEC’s handling of securities cases for some time. In his ruling today, Rakoff was very clear in stating that he didn’t believe the tentative agreement was “fair… reasonable… adequate, nor in the public interest.” He also called for the “underlying facts” and made it clear that the SEC’s typical boilerplate settlement, which usually involves the other party agreeing to the terms but not admitting to or denying wrongdoing, was not going to suffice.

Until now, the SEC’s settlement policy has allowed the Commission to declare a victory while letting defendants get away with not acknowledging any wrongdoing so that private plaintiffs cannot use such an outcome in litigation against them. Now, however, Rakoff wants the court and the public to actually learn whether or not Citigroup acted improperly.

Also in his opinion, Rakoff spoke about how the current settlement doesn’t do anything for the investors that Citigroup allegedly defrauded of hundreds of millions of dollars. Not only that but the SEC isn’t promising to compensate the alleged securities fraud victims.

For now, the trial between Citigroup and the SEC is scheduled for July 2012. However, the Commission could decide to appeal Rakoff’s ruling and ask an appellate court to either make him accept the $285 million settlement or appoint a new judge to the case. According to the New York Times, however, this could prove challenging because a writ of mandamus would be required.

Our securities fraud law firm has had it with financial firms defrauding investors and then getting away with this type of misconduct. It is our job to help our clients recoup their losses whether via arbitration or in court.

Behind Rakoff’s Rejection of Citigroup Settlement, NY Times, November 28, 2011
Judge to SEC: Stop settling, start really suing, OC Register, November 28, 2011
Read Judge Rakoff’s Opinion

More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011
Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, Stockbroker Fraud Blog, February 15, 2010
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011 Continue Reading ›

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff

Published on: November 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In Federal District Court today, Judge Jed S. Rakoff expressed concerns about the $285M securities settlement that Citigroup had reached with the Securities Exchange Commission. The financial firm was accused selling $1B in high-risk mortgage-linked collateralized debt obligation that it allegedly knew were at risk of failing. A federal judge must approve the settlement.

Rakoff is the same judge that wouldn’t approve Bank of America’s $33M securities settlement with the SEC for allegedly misleading investors. He later approved a revised settlement of $150 million.

At today’s hearing over the Citigroup deal, Rakoff said the settlement raises issues of concerns about the SEC’s enforcement practices. Approving the agreement would close the case on regulators’ claims that the financial firm.

While Rakoff has not yet made a decision about whether he will approve the settlement, he did question whether the SEC had any genuine desire to find out exactly what happened rather than just settling up. The SEC allows parties to settle without denying or admitting to any wrongdoing. Rakoff also raised concerns about the banks often break the promise they make when settling that they won’t violate securities laws in the future. This is the fifth time that Citigroup has settled securities claims with the SEC over alleged civil fraud. Rakoff also raised questions about why the bank’s settlement involves just a $95 million penalty when investors’ are estimated to have lost $700 million on the CDO.

Even though Citigroup didn’t jump into subprime mortgage loan packaging, it got involved in the housing boom just as that was reaching its heights As the market collapsed, Citigroup sustained over $30 billion in losses, and the government had to bail the bank out twice.

Last year, the financial firm consented to pay $75 million over allegations that it intentionally didn’t notify investors that their investment in the subprime mortgage market were declining in value when the financial crisis hit. Citigroup has since reorganized its risk management function

Citigroup’s $285M Settlement
The SEC claims Citigroup misled clients over a $1 billion derivatives deal involving Class V Funding III, which is a collateralized debt obligation. Not only did the financial firm select the portfolio but it also bet against it. Investors were not told of Citigroup’s conflicting allegiances and they sustained huge losses. Meantime, Citigroup made $126 million from taking a short position against the CDO’s assets, as well as another $34 million in fees.

Judge in Citigroup Mortgage Settlement Criticizes S.E.C.’s Enforcement, NY Times, November 9, 2011

Judge Dredd may scotch $285M Citi settlement: Attorney, Investment News, November 8, 2011

More Blog Posts:
Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses

Published on: October 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Inc. (C) is suing Abdullah and Ghazi Abbar. The Saudi investors have filed a FINRA arbitration claim against the Citigroup unit seeking to recover the $383 million that they say the bank lost their family’s money. The Abbars, who are father and son, are accusing Citigroup Global Markets of mismanaging their family’s savings.

Citigroup, which wants injunctive relief, says that the entities that took care of the the Abbars’ private-equity loan and leveraged option transactions are located abroad and therefore not under FINRA’s jurisdiction for arbitration. The financial firm also says that father, son, and their investment entities are not CGMI clients and their claims are not activities related it. The investment bank has noted that the Abbars chose to pursue it rather than the non-U.S. parties that they actually had agreements with that completed the transactions. The Abbars, however, say that those overseeing the Citigroup entities that took party in the daily management of their credit deal are personnel that are registered with FINRA.

Says Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd, “The financial industry has created its own securities arbitration forum to resolve disputes and claims between and against its members. It is ironic when claims are filed that they often go to court to beg to get out of arbitration, their self-imposed fate. While courts in New York seem to operate to accommodate Wall Street’s wishes, the law for decades has held that decisions regarding the liability of securities firms are for the arbitrators, not the courts. If these investors have properly alleged any wrongdoing by the U.S. securities firm, the court has no business intervening. Such wrongdoing can be simply ‘control person liability,’ which is the failure to control or properly supervise the behavior or operations of a subordinate or subsidiary.”

CGMI placed $343 million of the Abbars money in hedge funds that were included in a leveraged option swap transaction. In their FINRA arbitration claim, the Abbars argue that leading CGMI officers, including ex- global wealth management chief Sallie Krawcheck and Chief Executive Officer Vikram Pandit, pursued them.

Father and son contend that because of alleged “gross misconduct” by CGMI, their wealth was lost. They say that the bank’s failure to monitor the investments properly led to their total collapse during the height of the economic collapse in 2008. The Abbars also believe that lendings related to the Citigroup investments played a role in the losses. The Abbars says that Citigroup, which then started managing the positions that remained in the portfolio while implementing a program to redeem it, will “unjustly benefit” by about $70 million from the redemption of these investments.

Citigroup Sues to Block Arbitration of Saudi Investors’ Claim, Bloomberg/Businessweek, October 6, 2011
Citigroup Aims to Stop Arbitration From Proceeding, OnWallStreet, October 7, 2011

More Blog Posts:
Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011
Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011 Continue Reading ›

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal

Published on: October 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup has consented to pay $285 million to settle a Securities and Exchange Commission complaint accusing the bank of misleading investors in a $1 billion derivatives deal—a collateralized debt obligation called Class V Funding III. It was Citigroup that chose the assets for the portfolio that it then bet against. Investors were not told that Citigroup’s interests were contrary to theirs. The $285 million will go to the deal’s investors.

According to the SEC, Citigroup had significant influence over the $500 million of portfolio assets that were selected. It then took a short position against the assets, standing to profit if they dropped in value. All 15 investors were not made aware of any of this and practically all of their investments (in the hundreds of millions of dollars) were lost when the CDO defaulted in under 9 months after it closed on February 28, 2007. Credit ratings agencies had downgraded over 80% of the portfolio.

Financial instrument insurer Ambac, which was the deal’s biggest investor and had taken on the role of assuming the credit risk, was forced to pay those who bet against the bonds. In 2009, Ambac sought bankruptcy protection.

Meantime, Citigroup made about $126 million in profits from the short position and earned about $34 million in fees. S.E.C.’s division of enforcement director Robert Khuzami says that under the law, Citigroup was required to give these CDO investors “more care and candor.”

Per the SEC’s civil action, Citigroup employee Brian Stoker is the one that mainly put the deal together, while Credit Suisse portfolio manager Samir H. Bhatt was primarily in charge of the transaction. Credit Suisse was the CDO transaction’s collateral manager.

Stoker is fighting the SEC’s case against him. Meantime, Bhatt has settled the SEC’s charges by agreeing to pay $50,000. He has also been suspended from associating with any investment adviser for six months. Credit Suisse Group AG settled for $2.5 million.

As part of this settlement, Citigroup will pay a $95 million fine. It was just last year that the financial firm agreed to pay $75 million over federal claims that it purposely didn’t let investor know that their subprime mortgage investments were losing value during the financial crisis. Citigroup has said that since then, it has revamped its risk management function and gone back to banking basics.

Last year, Goldman Sachs Group Inc. agreed to settle for $550 million allegations that it did tell investors that the hedge fund that helped choose a CDO’s assets also was betting against it. JPMorgan Chase & Co. settled similar allegations earlier this year for $153.6 million.

Citigroup to Pay Millions to Close Fraud Complaint, NY Times, October 19, 2011

Related Blog Resources:
Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills

Published on: September 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Alphonse M. Lucchese, a CitiSmith Barney customer, has not only lost his $100,000 securities claim against the financial firm in Financial Industry Regulatory Authority arbitration, but he also now must pay for Citigroup‘s $49,985 in attorney fees. The case is Alphonse M. Lucchese, Claimant, v. Citi Smith Barney, Citigroup Global Markets, Inc., Robert Joseph Malenfant, and Alfred George Weaver, Respondents.

Lucchese had originally filed a securities fraud lawsuit in Middlesex Superior Court of Massachusetts. The case was later dismissed and sent to arbitration.

Lucchese claims Smith Barney stockbroker Weaver, who is a Respondent, recommended that he buy 4,000 shares of Lehman preferred. Despite his reservations-including concerns about the stock and how they compared with other companies’ shares-Lucchese “reluctantly agreed” and at $25/share spent $100,000.

The stock initially dropped 20%-a $20,000 drop in value. The Claimant says that Weaver told him to hold on to his stock. When the financial markets collapsed, Lucchese’s stocks’ worth then dropped by 63%. He says that when he told Weaver to sell the position even though it meant losing $63,000, the broker recommended that the Claimant still hold on to his shares and that Lehman was not going to fail… only it did. Lucchese’s shares then became worthless when Lehman filed for bankruptcy.

While Weaver acknowledged making a mistake by not selling Lucchese’s stock, the Respondent claims that the Claimant never ordered him to sell. Lucchese disputes this account.

The arbitrator, when ruling on the case, decided that there was lack of credible evidence supporting Lucchese’s claim. He also found that Weaver acted on “good faith” when he advised Lucchese not to sell prior to Lehman filing for bankruptcy and that the broker would have no way of knowing that this would happen.

Lucchese’s claims of securities fraud, including breach of fiduciary duty, breach of contract, negligence, failure to supervise, violations of federal and state securities laws, and other violations were denied in their entirety. In addition, the arbitrator determined that the Claimant should be responsible for Citigroup’s legal fees of $49,985, $3,150 in arbitration forum fees, and $400 for the explained decision.

Most securities cases must be resolved in arbitration and you want to make sure you are represented by experienced stockbroker fraud lawyers to increase your chances of recouping your losses. A securities claim is not the type of case you want to handle on your own.

Citi Smith Barney Customer Sues Over 2008 Failure to Sell Lehman Shares, Forbes, December 18, 2011

More Blog Posts:
Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011
Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011
Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, October 20, 2011
**This post has been backdated for publication.
Continue Reading ›

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors

Published on: August 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Two months after a federal grand jury indicted Tamara Lanz Moon for misappropriating more than $800,000 in clients’ money, the Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets $500,000 for failing to properly supervise her. Moon is charged with six counts of mail fraud. The acts of broker misconduct allegedly took place between 2001 and 2008, when the 43-year-old broker was employed by Citigroup Global Markets as a registered sales assistant with Series 7 and 63 licenses.

Court documents report that Moon targeted at least 22 Citigroup clients who were sick, elderly, or for some reason couldn’t properly monitor their accounts. Her alleged victims included an elderly client suffering from Parkinson’s disease. Moon also allegedly forged signatures, changed account documents, opened accounts with deceased clients’ social security numbers, created bogus letters of authorization, revised customer addresses, and made unauthorized trades. She was fired in 2008 after Citigroup finally discovered her alleged misconduct. FINRA would go on to permanently barred her from the industry. Moon, who was arrested by the FBI following recent indictment, is out on bail.

According to FINRA, Citigroup failed to investigate or detect a number of “red flags” that should have let the financial firm know that Moon was improperly handing client funds. The SRO is also accusing FINRA of failing to put into place reasonable controls and systems related to the supervisory review of client accounts, which allowed Moon to falsify records, and neglecting to identify suspicious activity related to disbursements and transfers in the accounts that she was using to misappropriate clients’ money.