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Citigroup’s Misconduct Comes to Light After Documents are Unsealed and Judge Refuses Request to Overturn FINRA Decision

Documents from the Financial Industry Regulatory Authority (FINRA) proceedings of Citigroup vs. Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital have been unsealed. The $54.4 million award granted in this case was the largest ever given to individuals in securities arbitration proceedings. A decision was made this month on Citigroup’s request to overturn FINRA’s decision.

Citigroup’s Misconduct Comes to Light After Documents are Unsealed and Judge Refuses Request to Overturn FINRA Decision

The details of the FINRA proceedings, which were confidential, have been unsealed following Citigroup’s request that the award be tossed out by a United States district court. The documents viewed by FINRA arbitrators show, according to the New York Times, that Citigroup rated the investments of the claimants at a 5 rating for risk on a scale of 1 to 5, with 5 being the highest risk rating. Investors went on to lose 80 percent of their investments, which is no surprise considering the risk rating.

The investments in question were municipal arbitrage portfolios, or ASTA/MAT. They were sold by Citigroup Global Markets through MAT Finance LLC. Internal emails show that the investments began their decline in value in early 2008, following which Sally Krawcheck requested the risk rating of the MAT. Despite the fact that documents showed a risk rating of 5, she was told the risk rating was “3-5.” In addition, Citigroup did not disclose the investments’ 5 rating to investors. Furthermore, according to The Times, the portfolio manager was instructed not to discuss information the internal guidelines — which differed from the investors’ prospectus — in a conference call that involved the brokers of clients that had sustained losses.

Claimants in the original securities arbitration proceedings listed fraud, unsuitability, and failure to supervise as alleged misconduct committed by Citigroup. Of the $54.4 million awarded to investors, $17 million was awarded in punitive damages.

Earlier this month, Judge Christine Arguello refused Citigroup’s request to overturn FINRA’s arbitration award. If you have been the victim of fraud, unsuitability or failure to supervise, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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