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Articles Posted in Citigroup

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Investors who suffered significant losses as a result of their auction-rate securities investment with Jeffries Group LLC may be able to obtain a recovery via FINRA securities arbitration. Jeffries Group is a subsidiary of Leucadia National Corp., another full-service brokerage firm. Recently, Jeffries was ordered to pay an investor $7 million regarding an auction-rate securities dispute.

In May 2012, a statement of claim was filed with the Financial Industry Regulatory Authority by Saddlebag LLC. The claim alleges that the firm wrongfully invested the client’s assets in illiquid auction-rate securities (ARS). According to securities lawyers, many financial firms sold auction-rate securities as short-term instruments with a highly-liquid nature, much like money market funds.

However, in 2008, the credit crunch resulted in a failure of the ARS market and investors with a piece of the $330 billion market were stuck holding securities that they were unable to sell. Other firms, including Morgan Keegan, have been accused of misleading investors regarding the liquidity risk of auction-rate securities.

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Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses because their full-service brokerage firm-registered adviser engaged in “selling away.” Selling away occurs when an adviser sells investments without their firm’s knowledge or approval. According to stock fraud lawyers, firms have a responsibility to adequately supervise their registered representatives and can be held liable for client losses if they fail to provide such supervision.


Recently, Citigroup was found liable for $3.1 million in a FINRA claim filed by a Florida couple. The couple had filed a case in 2010 against Citigroup, alleging negligence and fraud involving more than $1 million in investments. The real estate investments were reportedly made from 2004 to 2007 in condominium developments and real estate projects. The couple’s adviser, Scott Andrew King, was registered with Citigroup from 2002 until 2005. King reportedly referred the claimants to Lawton “Bud” Chiles III without Citigroup’s knowledge. Currently, King works as a broker for Wells Fargo Advisors.

In addition, the claimants were reportedly included in a group of investors who signed personal loan guarantees connected to a $12 million loan to one of the real estate projects. When the loan entered into default, a $10 million judgment was entered against the group.  Reportedly, each investor named in the judgment could potentially have to pay the entire amount of the bad loan. The $3.1 million award includes $2.1 million to cover the plaintiffs’ share of the judgment and $1 million in losses. In addition, in the event that the couple is required to pay the entire $10 million judgment, Citigroup will be required to reimburse them the entire amount.

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Unsuitable Recommendation of ELKs Leads to Claims Against Citigroup

ELKs are sometimes called reverse convertibles and can carry high risks. As a hybrid debt security, the return on this type of investment is linked to an underlying equity, most commonly a stock. Usually, ELKs mature in a year and, if the value of the ELK falls below a pre-set price, the investor will not receive cash but, instead, the investment is converted into shares in the underlying security. The value of these shares can be worth less than the investor’s initial investment. According to stock fraud lawyers, ELKs are structured products that are, in some cases, part of a speculative investment strategy that is unsuitable for many investors.
According to the Statement of Claim in this case, the 91-year-old female investor was allegedly sold an investment strategy that involved asset allocation that was unsuitable and materially flawed for an investor seeking conservation of principle. The claim is seeking $200,000 in damages for the investor and alleges fraud, breach of fiduciary duty and unsuitable sales.
According to securities fraud attorneys, firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given his or her age, investment objectives and risk tolerance.
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Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses in their accounts with GenSpring Family Offices LLC, a firm owned by a wholly-owned SunTrust subsidiary. Reportedly, arbitration cases have already been filed on behalf of ultra-high-net-worth investors which allege mishandling of investment accounts by GenSpring.

GenSpring Clients Could Recover Losses

In one case, the investors’ trust interviewed multiple money managers and investment firms including Credit Sussie, CitiGroup, Deutsche Bank, LaSalle Bank and Goldman Sachs. All of these firms recommended diversification across traditional asset classes, such as bonds and equities, as well as selective investments in alternative products for special situations.

However, the claim asserts that GenSpring stood out because of its unique approach which would provide better downside protection and better returns through the use of Multi-Strategy Hedge Funds, such as Silver Creek Funds, instead of the bond or fixed income portion of client portfolios. Allegedly, GenSpring officials claimed that their approach, which had been tested thoroughly, would behave like traditional bonds in terms of asset class correlation and volatility while providing returns across all market cycles that were superior to traditional bonds. The trust invested approximately $10 million and stated its primary goal as capital preservation.

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Securities fraud attorneys are currently investigating claims on behalf of investors with full-service brokerage firms who suffered significant losses as a result of their investment in Paulson & Co.’s Advantage and Advantage Plus hedge funds. Reportedly, the Advantage Fund’s value declined 51 percent in 2011 and 19 percent in 2012. According to Securities and Exchange Commission filings, many major brokerage firms including Citigroup, Morgan Stanley, Merrill Lynch and UBS Financial Services used proprietary “feeder” funds to invest in the Paulson funds.

Paulson Hedge Fund and Full-Service Brokerage Firm Feeder Fund Investors Could Recover Losses

The feeder funds used by full-service brokerage firms to invest in Paulson’s Advantage and Advantage Plus Funds went by a variety of names, such as LionHedge Paulson, UBS Paulson Advantage Fund, Morgan Stanley HedgePremier Paulson, Paulson Advantage Access Fund and CAIS Paulson. Stock fraud lawyers say that all of the aforementioned funds invest in Paulson’s funds and that in some cases they may not have provided oversight or due diligence in the funds, despite representations made to investors.

Following the Advantage Fund’s decline, in May 2012 the fund was put on Morgan Stanley Wealth Management’s “watch list” and investors are now being advised to redeem. Three months later, Citigroup reportedly made a similar decision, pulling $410 million from Paulson’s funds. In light of the fact that the Paulson funds were sued by an investor in February 2012, many investors are contacting securities fraud attorneys about their losses. In the 2012 lawsuit, both Paulson & Co. and its funds were charged with deeply investing into SinoForest without conducting adequate due diligence and accused of breach of fiduciary duty.

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In light of Citigroup Inc. Securities Litigation, Case No. 07 Civ. 9901, a settled class action suit against Citigroup, Citigroup shareholders are encouraged to contact an investment fraud lawyer in order to explore all their legal rights and options for recovering substantial losses that resulted from holding a concentrated position in the stock. Investors with full-service brokerage firms, excluding Citigroup and its related parties, may be able to recover their losses through Financial Industry Regulatory Authority securities arbitration.

Full-service Brokerage Customers Who Were Overconcentrated in Citigroup Stock Could Recover Losses

Many claims related to the overconcentration in Citigroup stock in full-service brokerage accounts focus on the fact that many of these portfolios were mismanaged, given that risk management strategies were available that would have offered investors protection for the value of their portfolio. Securities arbitration lawyers say that protective puts and collars, stop loss and limit orders, “zero cost” collars and other “hedge” strategies are risk management strategies that could have been used to protect clients’ portfolios.

Protective puts, limit orders and stop loss orders are a way to give an account an exit strategy and downside protection in the event that a stock declines in value. A “zero cost” collar is a hedging strategy that creates a range of value, allowing the portfolio to maintain its value, irrespective of the direction and fluctuation of the price of the underlying stock. In many cases, investment fraud lawyers say that investors’ concentrated positions were directly exposed to fluctuations in the securities markets because of a failure of full-service brokerage firms to utilize these risk management strategies.

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An investor recently commenced legal action attempting to recover $400 million lost in Citigroup Alternative Investments LLC’s Corporate Special Opportunities Fund. The investor, David Beach, is suing Citigroup, accusing the bank of misleading investors about debt trading in ProSiebenSat. 1 Media AG, (PSM). ProSiebenSat. 1 is a German firm and one of Europe’s biggest broadcasters.

Investor Sues Citigroup for $400 million Lost in CSO Fund

According to the complaint, which was filed in Manhattan federal court, John Picket, the CSO’s founder, leveraged the assets of the fund in order to purchase debt in the German firm’s offering worth around 558 million Euros, or $730 million. Allegedly, following Pickett’s actions, the CSO fund suffered significant losses. Reportedly, in December 2007, Pickett resigned.

Beach’s investment fraud lawyers stated in the complaint that, “investors were not informed that his departure was the result of his breaches of the fund’s investment restrictions.” Citigroup spokeswoman Danielle Romero-Apsilos declined to comment in relation to the suit.

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Securities fraud attorneys scored a win for investors in FINRA arbitration against a unit of Citigroup Inc. in a FINRA ruling on September 5. The arbitration panel ordered Citigroup to pay investors losses amounting to $1.4 million. These losses were associated with a municipal bond steeped in derivative securities that were very risky — yet the bond was, allegedly, marketed as “safe” to the investor.

News: Arbitration Panel Rules in Favor of Investor, Citigroup to pay $1.4 Million

New York City investor Margaret Hill filed the case in 2011 and requested over $3.5 million in damages. Her losses were a result of Citi’s Rochester Municipal Fund. Investment fraud lawyers say Hill’s case alleged that she was sold unsuitable investments by Citigroup Global Markets Inc. which, in addition, misrepresented facts.

According to the allegations against Citigroup, Hill bought the Rochester Fund as an alternative to her individual municipal bond funds because Citigroup said it would pay more interest and would be a “safe” alternative to her funds at that time. However, the Rochester Fund reportedly consisted primarily of tobacco bonds and risky derivative securities. After purchasing the bond in 2007, Hill sold the funds in 2009, suffering losses amounting to $2.9 million.

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As a significant number of gas prepayment bonds ratings have been downgraded by Moody’s Investors Service, stock fraud lawyers are advising investors to be cautious regarding their investments in these bonds. As a result of downgrades in Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Credit Agricole Corporate & Investment Bank, Merrill Lynch & Co., BNP Paribas, Morgan Stanley, Royal Bank of Canada and Societe Generale, numerous bonds became subject to review and subsequent downgrades.

Investors Beware as Gas Prepayment Bonds Downgraded by Moody

Securities arbitration lawyers say this situation is similar in some ways to what happened when, after Lehman declared bankruptcy, Series 2008A of Main Street Natural Gas Inc. Gas Project Revenue Bonds were downgraded. In the case of the Lehman bonds, the bonds were not guaranteed by Lehman Brothers, though certain payment obligations of the gas supplier were guaranteed.

The following is a list of gas prepayment bonds that have been affected by downgrades:

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ETFs (exchange traded funds) and ETNs (exchange traded notes) have recently gained a significant amount of attention in the securities industry. Securities fraud attorneys have been filing arbitration claims on behalf of investors who were unsuitably recommended ETFs or ETNs and suffered significant losses as a result. The Financial Industry Regulatory Authority (FINRA) has started to increase its efforts in regulating inverse ETFs and ETNs, hoping to ensure that unsophisticated investors are not being sold these complicated products.

Investors Could Recover Losses from their Inverse ETF and ETN Investments

In connection with FINRA’s efforts, UBS Financial Services, Morgan Stanley, Wells Fargo and Citigroup Global Markets Inc. have agreed to pay $7.3 million in fines and $1.8 million in restitution, totaling $9.1 million. This will settle allegations that they sold inverse and leveraged ETFs to clients for which the investment was unsuitable. According to FINRA, these four firms did not have a “reasonable basis” for the recommendation of the securities to certain clients and also failed to provide adequate supervision. For more than a year, from January 2008 through June 2009, $27 billion in inverse ETFs were bought and sold by the firms.

With ETFs and ETNs now being recognized as a significant problem, we are likely to see more sanctions leveled by FINRA. According to stock fraud lawyers, the SEC ceased approving applications for ETFs in March 2010, when those ETFs used derivatives. Furthermore, the SEC indicated that it wanted to determine if leveraged and inverse ETFs warranted additional investor protection. There is concern, from both FINRA and the SEC, that inverse and leveraged ETFs are being confused with traditional, less risky ETFs.

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