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Articles Tagged with Citigroup

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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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Principal Protected Notes, or PPNs, are structured investments, meaning they connect the performance of commodities, equities, currencies and other assets to fixed income notes and CDs. PPNs are legitimate investments, though they have received a lot of negative attention lately. PPNs may have a full principal protection, but only partial principal protection is possible as well. In addition, PPNs can pay at their maturity in different ways, some paying a variable sum and others in coupons connected to a security or index. While PPNs are appropriate for many investors, there are risks associated with them.

Principal Protected Notes and the Lehman Brothers Debacle

The now infamous class action suit against Lehman Brothers has its roots in the claim that the risks associated with PPNs were not disclosed to investors. When Lehman Brothers filed for bankruptcy, the principal on the PPNs — for which Lehman was the borrower — became unprotected and investors were left with unexpected losses. According to claimants in the case, they were led to believe that as long as they held them to maturity, their PPNs were 100 percent principal protected. Claimants also say they were told that as long as their underlying indices maintained their worth, the PPNs were principal protected. Furthermore, the risks associated with PPNs were not disclosed and customers were not notified of the decline of Lehman Brothers which could affect the value of the investments.

The case against Lehman Brothers deals primarily with broker misconduct in misleading investors about the safety of their investments. However, if other allegations are true and firms truly pushed PPNs at the same time that they were reducing their own PPN holdings, it is a question outright broker fraud as opposed to failure to disclose.

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Once again, Wall Street insiders win and retail investors lose.

The outside advisers handling Lehman Brothers’ bankruptcy – mostly bankers and lawyers – have made over $1.4 billion for their services since Lehman Brothers went bankrupt three years ago.   If you’re a Wall Street insider, Lehman Brothers, which is bankrupt and out-of-business, is a fantastic place to work.

Meanwhile, investors holding Lehman Brothers structured notes are slated to get back only about one fifth of the money they invested in the notes when the Lehman Brothers bankruptcy litigation finally winds up.  Financial advisers at UBS and other brokerage firms peddled Lehman Brothers structured notes with great-sounding names like “100% principal protected” notes and “Return Optimization” notes.   But for investors getting back only twenty cents on the dollar, their principal wasn’t protected and their returns weren’t optimized.

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Both Lehman Brothers and UBS have had more than their fair share of bad press over the last three years, but are they cut from the same cloth? A recent article in Forbes makes the argument that they are. September marked the three-year anniversary of Lehman Brothers’ bankruptcy and the arrest of a UBS trader in London for fraud. When the world financial markets were shattered by the collapse of Lehman in 2008, many investors were left with annihilated life savings and retirement accounts.

Lehman Brothers, UBS and Wall Street Greed

Though it may appear that the most recent UBS incident and Lehman Brothers’ collapse are different events, according to Forbes’ article, “The players may be different but the rules are the same.” The “Delta One” trading desk used by the UBS trader and ETFs he was trading have a similar concept to the Lehman Brothers Principled Protected Notes sold by Lehman and UBS and both were excessively risky. Furthermore, UBS and Lehman worked cooperatively to dump the PPNs on investors, causing them significant losses.

Since the fiasco began, claimants been victorious in almost all securities arbitration cases against UBS and recovered their losses that resulted from the Lehman Structured Product Notes. However, criminal charges have not been brought against any Lehman executives, a measure of justice that is yet to be realized. According to an article in The New York Times, this is a case in which “brokers selling complex securities that they once contended were safe and sound have saddled individual investors with billions in losses since the credit bubble burst. Remember auction-rate securities? Those were peddled to investors as just as good as cash — until they no longer were after that market seized up in 2008.”

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