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Citigroup Loses Suit to Overturn $54-mln Ruling

12/22/2011

Reuters

*Federal Judge Finds That FINRA panel is Correct

*Investors’ losses were tied to risky municipal bond funds

*FINRA panel ruling among largest to individual investors

A U.S. judge on Wednesday denied a request by Citigroup to overturn a $54.1-million arbitration ruling in favor of a group of investors for losses incurred in a series of municipal bond funds which plunged in value between 2007 and 2008.

Judge Christine Arguello in Denver, Colorado, disagreed with Citigroup’s arguments, including the latter’s assertion that a Financial Industry Regulatory Authority arbitration panel disregarded the law in its award, in April, to venture capital investor Jerry Murdock Jr., retired patent attorney Gerald D. Hosier, and Brush Creek Capital.

The $54.1 million securities arbitration award was among the largest that a brokerage firm has had to pay individual investors, according to the Securities Arbitration Commentator Inc., a newsletter in Maplewood, N.J. The investors’ losses were tied to six different leveraged municipal bond arbitrage funds sold by Citigroup Global Markets.

Of the total award, the FINRA panel ruled that Citi must pay nearly $34.1 million in compensatory damages, $17 million in punitive damages, and $3 million in legal fees.

Citigroup sold a series of funds through an entity called MAT Finance LLC. The MAT, or municipal arbitrage trust funds, borrowed at low short-term rates and invested proceeds in longer-term muni bonds. But the strategy was ultimately shown to be flawed and left investors with losses of as much as 80 percent.

Citigroup had argued to the court, after the FINRA panel made its ruling in April, that the investors could not have relied on certain oral statements that the firm made about their purchases, because they had signed agreements which disclosed that they could lose all of their money.

“The court finds (the) argument wholly unpersuasive,” wrote Judge Christine Arguello in an opinion.

Judge Arguello ruled that the FINRA panel wasn’ wrong to award the investors punitive damages and legal fees.

Lawyers for the parties didn’t make any oral arguments before the court, according to Philip M. Aidikoff, a lawyer for Aidikoff, Uhl & Bakhtiari in Beverly Hills, California, who represented the investments.

The court’s full agreement with all of the investors’ arguments was “startling,” he said.

A Citigroup spokeswoman declined to comment.


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