UBS & Citi Do Have to Arbitrate Auction-Rate Securities Case Filed by Health Care Nonprofit Carilion Clinic

According to the U.S. Court of Appeals for the Fourth Circuit, a district court was right when it decided not to stop Carilion Clinic’s arbitration proceeding against Citigroup Global Markets (C) and UBS Financial Services (UBS) for an ARS issuance that proved unsuccessful. The financial firms had served the healthcare nonprofit in a number of capacities, including providing underwriting services.

Carilion had retained UBS and Citi in 2005 to raise over $308M so that it could redo its medical facilities. They are accused of recommending that Carilion put out over $72M of bonds in the form of variable demand rate obligations and $234 million in ARS.

When the auction-rate securities market took a huge dive in February 2008, Citi and UBS ended their policy of supporting the market and the auctions started to fail. As a result, result, Carilion allegedly was forced to refinance what it owed to avoid higher interest rates and it sustained losses in the millions of dollars. The nonprofit later began auction-rate securities arbitration proceedings with FINRA against both firms.

Although arbitration wasn’t provided for in the written agreements, Carilion contended that as the firms’ customer, it was entitled to turn in the dispute to the SRO. The district court concurred, finding that seeing as Citi and UBS provided Carilion with a number of financial services for payment, the nonprofit meets the meaning of the term of having been a ‘customer’ of both Citi and UBS for FINRA arbitration code purposes. The court disagreed that Carilion gave up being able to arbitrate when it consented to the mandatory forum selection clause that lets the court litigate such disputes.

Now, the appeals court is affirming the district court’s findings about both the term “customer” and the forum selection clause.

If you believe that your company has been the victim of institutional investment fraud, you should consult with an experienced securities law firm right away. Your case evaluation should be free.

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