January 21, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors

Last month, a US judge refused Citigroup’s request to overturn a $54.1M arbitration award that a Financial Industry Regulatory Authority arbitration panel had ordered the financial firm to pay investors Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital. The award was the largest amount ever granted to individuals in a securities arbitration proceeding.

Following Citigroup’s request that a United States district court toss out the award, details from what were confidential proceedings have been unsealed. According to the New York Times, documents viewed by the arbitrators show that on a scale of 1 to 5, with 5 signifying the highest risk (usually only assigned to products that potentially carried the risk of an investor losing everything), Citigroup rated these investments as having a 5 rating for risk. Is it no wonder then that investors could and would go on to lose 80% of what they had investments.

The investments, which were municipal arbitrage portfolios, are known as ASTA/MAT. Citigroup Global Markets sold them through MAT Finance LLC.

Per internal e-mails, after the investments began declining in value in early 2008, when Citigroup wealth management head Sallie Krawcheck asked for the MAT’s risk rating,” She was told that it was “3-5.” Also, customers were never told about the 5 rating that their investments were previously given. The Times also reported that during a conference call involving brokers whose clients had sustained losses, the portfolio manager was directed to not discuss internal guidelines, which contained different information than what was in the prospectus that investors had received.

Citigroup eventually would offer to buy back the investments at a discount price but only if investors agreed to not file a securities fraud lawsuit against the financial firm. (Brokers have said they felt pressured by Citigroup to get investors on board with this. For example, a memo with the heading “Fund Rescue Options “noted that if the broker’s client let Citigroup repurchase the instruments, this would not be noted in his/her U-5 regulatory record. If, however, the client chose to sue, then this would appear in the broker’s U-5.)

In their securities fraud case, Claimants accused Citigroup of failure to supervise, fraud, and unsuitability. After the FINRA arbitration panel ordered them to pay the investors, Citigroup argued that panel members had ignored the law and contended that despite verbal statements made to investors, the latter had signed agreements acknowledging that the risk of losing everything was a possibility. Judge Christine Arguello would go on to affirm the FINRA panel’s decision. While the majority of the award was compensation for the claimants’ investment losses, about $17 million was for punitive damages.

Secrets of a Sales Machine, NY Times, January 14, 2012

Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT/ASTA Case, Forbes, April 12, 2011


More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest, Stockbroker Fraud Blog, January 20, 2012

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2012

Continue reading "Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors " »

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Posted In: Citigroup , FINRA , Financial Firms

January 20, 2012

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest

FINRA says that Citigroup Global Markets will pay a fine of $725K for not disclosing specific conflicts of interest during public appearances made by research analysts and in research reports. By settling, Citigroup is not denying or admitting to the charges although it has, however, consented to an entry of the findings.

According to the SRO, in research reports published between 1/07 and 3/10, the financial firm did not disclose possible conflicts of interest that existed in certain business connections, including the facts that the financial firm and its affiliates:
• Received revenue or investment banking from certain companies
• Had an at least 1% or more ownership in companies that were covered
• Managed public securities offerings
• Made a market in certain covered companies’ securities

Also, FINRA says that Citigroup research analysts did not reveal these same conflicts when bringing up the covered companies during public appearances.

As a result of these alleged failures to disclose, FINRA contends that Citigroup kept investors from knowing of possible biases in the research recommendations that it made. FINRA says that such disclosures are essential in order to make sure that investors are given all of the information they need when making decisions about investments.

The SRO said that the reason Citigroup did not provide the required information is that the database for identifying and creating disclosures experienced technical difficulties and/or was inaccurate. FINRA also cites a lack of proper supervisory procedures that could have prevented such inaccuracies and disclosure failures. However, Citigroup did self-report a number of the deficiencies and has taken remedial steps to remedy them.

A financial firm can be held liable when failure to disclose key facts about an investment leads to an investor sustaining financial losses. In many instances, such omissions are made to hide or diminish the risk involved in the investment. While some omissions are intentional, others can occur due to inadequate supervision or the lack of proper systems and procedures to make sure such failures to disclose don’t happen.

It is a broker’s obligation to fairly disclose all the risks involved in a potential investment. (Misrepresenting material facts is another way that risks are concealed and investors end up losing money.

It doesn't matter whether malicious intent was involved. If a broker-dealer concealed OR failed to disclose key information related to your investment and you suffered financial losses on your investment, you may have a securities fraud case on your hands that could allow you to recover your losses.


Citi settles with Finra over alleged conflicts at its brokerage, Investment News, January 20, 2012

Finra Fines Citigroup $725,000 For Alleged Research Violations, The Wall Street Journal, January 18, 2012

Financial Industry Regulatory Authority

More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010

Continue reading "Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest" »

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Posted In: Citigroup , FINRA , Financial Firms

November 28, 2011

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff

U.S. District Judge Jed S. Rakoff has turned down the proposed $285M settlement between the SEC and Citigroup Global Markets Inc. However, unlike with the SEC’s tentative $33M settlement with Bank of America that he rejected, eventually approving a $150 million settlement between both parties—this time, Rakoff is ordering the SEC and Citigroup to trial.

The SEC claimed Citigroup sold Class V Funding III right as the housing market fell apart in 2007 and then bet against the $1 billion mortgage-linked collateralized debt obligation. Meantime, the financial firm allegedly failed to tell clients about this conflict of interest. Investors would go on to lose nearly $700 million over the CDO, while Citigroup ended up making about $160 million.

To many observers, Rakoff’s decision doesn’t come as a surprise. He has expressed concern with the SEC’s handling of securities cases for some time. In his ruling today, Rakoff was very clear in stating that he didn’t believe the tentative agreement was “fair… reasonable… adequate, nor in the public interest.” He also called for the “underlying facts” and made it clear that the SEC’s typical boilerplate settlement, which usually involves the other party agreeing to the terms but not admitting to or denying wrongdoing, was not going to suffice.

Until now, the SEC’s settlement policy has allowed the Commission to declare a victory while letting defendants get away with not acknowledging any wrongdoing so that private plaintiffs cannot use such an outcome in litigation against them. Now, however, Rakoff wants the court and the public to actually learn whether or not Citigroup acted improperly.

Also in his opinion, Rakoff spoke about how the current settlement doesn’t do anything for the investors that Citigroup allegedly defrauded of hundreds of millions of dollars. Not only that but the SEC isn't promising to compensate the alleged securities fraud victims.

For now, the trial between Citigroup and the SEC is scheduled for July 2012. However, the Commission could decide to appeal Rakoff’s ruling and ask an appellate court to either make him accept the $285 million settlement or appoint a new judge to the case. According to the New York Times, however, this could prove challenging because a writ of mandamus would be required.

Our securities fraud law firm has had it with financial firms defrauding investors and then getting away with this type of misconduct. It is our job to help our clients recoup their losses whether via arbitration or in court.

Behind Rakoff’s Rejection of Citigroup Settlement, NY Times, November 28, 2011

Judge to SEC: Stop settling, start really suing, OC Register, November 28, 2011

Read Judge Rakoff's Opinion


More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, Stockbroker Fraud Blog, February 15, 2010

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Continue reading "Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff" »

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Posted In: Citigroup , Collateral Debt Obligation , Financial Firms , SEC

October 22, 2011

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses

Citigroup Global Markets Inc. (C) is suing Abdullah and Ghazi Abbar. The Saudi investors have filed a FINRA arbitration claim against the Citigroup unit seeking to recover the $383 million that they say the bank lost their family’s money. The Abbars, who are father and son, are accusing Citigroup Global Markets of mismanaging their family’s savings.

Citigroup, which wants injunctive relief, says that the entities that took care of the the Abbars’ private-equity loan and leveraged option transactions are located abroad and therefore not under FINRA’s jurisdiction for arbitration. The financial firm also says that father, son, and their investment entities are not CGMI clients and their claims are not activities related it. The investment bank has noted that the Abbars chose to pursue it rather than the non-U.S. parties that they actually had agreements with that completed the transactions. The Abbars, however, say that those overseeing the Citigroup entities that took party in the daily management of their credit deal are personnel that are registered with FINRA.

Says Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd, “The financial industry has created its own securities arbitration forum to resolve disputes and claims between and against its members. It is ironic when claims are filed that they often go to court to beg to get out of arbitration, their self-imposed fate. While courts in New York seem to operate to accommodate Wall Street’s wishes, the law for decades has held that decisions regarding the liability of securities firms are for the arbitrators, not the courts. If these investors have properly alleged any wrongdoing by the U.S. securities firm, the court has no business intervening. Such wrongdoing can be simply ‘control person liability,’ which is the failure to control or properly supervise the behavior or operations of a subordinate or subsidiary.”

CGMI placed $343 million of the Abbars money in hedge funds that were included in a leveraged option swap transaction. In their FINRA arbitration claim, the Abbars argue that leading CGMI officers, including ex- global wealth management chief Sallie Krawcheck and Chief Executive Officer Vikram Pandit, pursued them.

Father and son contend that because of alleged “gross misconduct" by CGMI, their wealth was lost. They say that the bank's failure to monitor the investments properly led to their total collapse during the height of the economic collapse in 2008. The Abbars also believe that lendings related to the Citigroup investments played a role in the losses. The Abbars says that Citigroup, which then started managing the positions that remained in the portfolio while implementing a program to redeem it, will “unjustly benefit” by about $70 million from the redemption of these investments.

Citigroup Sues to Block Arbitration of Saudi Investors’ Claim, Bloomberg/Businessweek, October 6, 2011

Citigroup Aims to Stop Arbitration From Proceeding, OnWallStreet, October 7, 2011

More Blog Posts:
Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011

Continue reading "Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses" »

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Posted In: Arbitration , Citigroup , FINRA , Financial Firms

September 9, 2011

Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills

Alphonse M. Lucchese, a CitiSmith Barney customer, has not only lost his $100,000 securities claim against the financial firm in Financial Industry Regulatory Authority arbitration, but he also now must pay for Citigroup’s $49,985 in attorney fees. The case is Alphonse M. Lucchese, Claimant, v. Citi Smith Barney, Citigroup Global Markets, Inc., Robert Joseph Malenfant, and Alfred George Weaver, Respondents.

Lucchese had originally filed a securities fraud lawsuit in Middlesex Superior Court of Massachusetts. The case was later dismissed and sent to arbitration.

Lucchese claims Smith Barney stockbroker Weaver, who is a Respondent, recommended that he buy 4,000 shares of Lehman preferred. Despite his reservations—including concerns about the stock and how they compared with other companies’ shares—Lucchese “reluctantly agreed” and at $25/share spent $100,000.

The stock initially dropped 20%—a $20,000 drop in value. The Claimant says that Weaver told him to hold on to his stock. When the financial markets collapsed, Lucchese’s stocks’ worth then dropped by 63%. He says that when he told Weaver to sell the position even though it meant losing $63,000, the broker recommended that the Claimant still hold on to his shares and that Lehman was not going to fail… only it did. Lucchese’s shares then became worthless when Lehman filed for bankruptcy.

While Weaver acknowledged making a mistake by not selling Lucchese’s stock, the Respondent claims that the Claimant never ordered him to sell. Lucchese disputes this account.

The arbitrator, when ruling on the case, decided that there was lack of credible evidence supporting Lucchese’s claim. He also found that Weaver acted on “good faith” when he advised Lucchese not to sell prior to Lehman filing for bankruptcy and that the broker would have no way of knowing that this would happen.

Lucchese’s claims of securities fraud, including breach of fiduciary duty, breach of contract, negligence, failure to supervise, violations of federal and state securities laws, and other violations were denied in their entirety. In addition, the arbitrator determined that the Claimant should be responsible for Citigroup’s legal fees of $49,985, $3,150 in arbitration forum fees, and $400 for the explained decision.

Most securities cases must be resolved in arbitration and you want to make sure you are represented by experienced stockbroker fraud lawyers to increase your chances of recouping your losses. A securities claim is not the type of case you want to handle on your own.


Citi Smith Barney Customer Sues Over 2008 Failure to Sell Lehman Shares, Forbes, December 18, 2011


More Blog Posts:
Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, October 20, 2011

**This post has been backdated for publication.

Continue reading "Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills " »

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Posted In: Arbitration , Citigroup , Financial Firms

August 16, 2011

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors

Two months after a federal grand jury indicted Tamara Lanz Moon for misappropriating more than $800,000 in clients’ money, the Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets $500,000 for failing to properly supervise her. Moon is charged with six counts of mail fraud. The acts of broker misconduct allegedly took place between 2001 and 2008, when the 43-year-old broker was employed by Citigroup Global Markets as a registered sales assistant with Series 7 and 63 licenses.

Court documents report that Moon targeted at least 22 Citigroup clients who were sick, elderly, or for some reason couldn’t properly monitor their accounts. Her alleged victims included an elderly client suffering from Parkinson’s disease. Moon also allegedly forged signatures, changed account documents, opened accounts with deceased clients’ social security numbers, created bogus letters of authorization, revised customer addresses, and made unauthorized trades. She was fired in 2008 after Citigroup finally discovered her alleged misconduct. FINRA would go on to permanently barred her from the industry. Moon, who was arrested by the FBI following recent indictment, is out on bail.

According to FINRA, Citigroup failed to investigate or detect a number of “red flags” that should have let the financial firm know that Moon was improperly handing client funds. The SRO is also accusing FINRA of failing to put into place reasonable controls and systems related to the supervisory review of client accounts, which allowed Moon to falsify records, and neglecting to identify suspicious activity related to disbursements and transfers in the accounts that she was using to misappropriate clients’ money.

FINRA says that Moon was able to use Citigroup’s “lax supervisory practices” to bilk the financial firm’s “most vulnerable” clients. The SRO says that Citigroup could have and should have stopped her.

Among the warning signs that Citigroup is accused of not responding to:
• Address discrepancies in exception reports regarding an elderly widow whom Moon bilked of almost $80,000. When Moon explained to Citigroup that the inaccuracy occurred because the client had moved to Arizona, Citigroup accepted the reason she provided, which allowed her to keep misappropriating client money.

• Even after Citigroup was told that one customer had died, Moon was still able to create an account in that person’s name and that dead client’s widow. She then transferred money from the deceased client’s bogus account to the widow’s fraudulent account, wrote checks from the widow’s account, and transferred several thousand dollars to her personal account.

• Even though Moon set up a fraudulent account in her dad’s name, transferred $150,000 of a customer’s account into the bogus account, and took $90,000 of that money that she moved into one of her accounts, Citigroup didn’t detect her misconduct. FINRA says that this because Citigroup’s review of customer account records was deficient.

By agreeing to settle, Citigroup is not denying or admitting to the securities charges.

FINRA Fines Citigroup $500,000 for Failing to Supervise Sales Assistant Who Misappropriated Customer Funds, FINRA, August 9, 2011

Citigroup Global Markets Fined $500,000 in FINRA Failure to Supervise Case, Forbes, August 10, 2011

Citigroup Aide Stole From Widows, Father, Finra Says, Bloomberg, August 25, 2009


More Blog Posts:
Citigroup Global Markets Sales Assistant Accused of Stealing from Clients is Banned by FINRA from the Securities Industry, Stockbroker Fraud Blog, September 4, 2009

Texas Securities Fraud: Insurance Agent Could Get 100 Years Behind Bars for Using Fraudulent Annuities to Bilk Elderly Seniors of Over $5M, Stockbroker Fraud Blog, August 9, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Stockbroker Fraud Blog, September 29, 2010

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Posted In: Citigroup , FINRA , Financial Firms , Securities Fraud , Senior Investors

April 22, 2011

Citigroup Chair Says Bank's Crisis is Over

At the financial firm’s annual shareholder meeting, Citigroup chairman Richard D. Parsons says that even though there will be challenges this year, the investment bank is “clearly through the crisis.” Parsons statement reflects a significant shift for Citibank from last April when the financial firm made its first profit since the 2007 financial collapse and the government was still in possession of a large ownership stake. Citigroup, which received three government bailouts, has since paid back the Treasury Department and reported profits for five quarters in a row. Most recently, the investment bank has just reported a $3 billion profit.

The New York Times says that unlike in recent years when Citigroup shareholders that attended the annual meeting would complain about board members or former US Treasury Secretary Robert E. Rubin, this year, the shareholders that did show up primarily complained that Citi’s stock price would have to hit almost $600 for them to break even on shares.

The bank’s shares, which used to trade at over $50 each, now trade at under $5 dollars. After the reverse share split, share prices will rise to approximately $45. Each investor’s total, however, will go down by 90%.

Over 95% of shareholders had approved the stock split. At the meeting, Citi’s chief executive Vikram S. Pandit explained that while the share count was changing the value of ownership position was not. He also spoke of the benefits of drawing in institutional investors who couldn’t buy shares of companies that had stock that traded under $10. Pandit said there was potential for short-sellers to beat down the stock.

Related Web Resources:
Citi’s Annual Meeting Ceases to Be a Battleground, New York Times, April 21, 2011

Citi CEO tries to shed bank's "survivor" image, Reuters, April 21, 2011


More Blog Posts:
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients, Stockbroker Fraud Blog, December 13, 2010

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010

Continue reading "Citigroup Chair Says Bank's Crisis is Over " »

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Posted In: Citigroup , Financial Firms

April 13, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses

In what is being called the largest award that a major Wall Street broker-dealer has been ordered to pay individual investors, the Financial Industry Regulatory Authority has ordered Citigroup to pay $54.1 million to investors Suzanne Barlyn and Randall Smith over investment losses they sustained on high risk municipal bond funds that lost 77% of their value during the financial crisis.

Richard Zinman, formerly of Citi’s Smith Barney unit, was the broker for Murdock, a venture capital investor, and Hosier, a retired patent lawyer. Zinman left Citi soon after the funds blew up. During the arbitration hearing, he testified on behalf of the two men, saying that Citi did not tell its brokers how risky and volatile the funds in fact were. Zinman now works for Credit Suisse Group.

Citigroup has been under fire for awhile now over its municipal bond funds. Geared towards wealthier clients, investments were a minimum of $500,000. The bond funds were supposed to deliver returns a few percentage points above that of municipal bonds by borrowing up to $7 for every $1 invested. The proceeds were placed in mortgage debt and municipal bonds. Unfortunately, the municipal bond funds' value dropped when the mortgage market started to fail. After Citi brokers complained, however, the financial firm offered share buybacks that lowered investor losses to approximately 61%.

As part of this case, Citi must pay $17 million in punitive damages, $3 million in legal fees, and $21,600 for the hearing free expense, which is normally divided between the parties involved. Prior to this award, the largest one Citi was ordered to pay against a bond-fund claimant was $6.4 million.

Related Web Resource:
Citigroup Loses Muni Case, The Wall Street Journal, April 13, 2011

Muni bonds hit by more selling on default fears, Los Angeles Times, January 12, 2011


More Blog Posts:
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011

Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011

Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Institutional Investor Securities Blog, September 29, 2010


Continue reading "Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses" »

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Posted In: Citigroup , FINRA , Financial Firms , Municipal Bonds

December 13, 2010

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients

Sanjeev Jayant Kumar Shah, a former Smith Barney financial services adviser, has pleaded guilty to one count of securities fraud and three counts of wire fraud over his involvement in a securities scam to bilk clients of Citibank and his firm. Shah was charged with diverting about $3.25 million from a foreign bank client and fabricating documents that he claimed were from bank representatives.

He is also accused of falsely saying that the transfers were required for bond purchases and that he would send statements showing these purchases. Prosecutors say that he attempted to cover up the scam by telling clients that a computer mistake had kept the bonds from showing up online bank statements and that had had bought the bonds for the bank.

The securities fraud charge comes with a 20 year maximum penalty plus a fine. Each wire fraud charge carries a maximum 30 years in prison penalty and also a fine.

Shah was at Citigroup unit Smith Barney for 3 ½ years. Citigroup says that it was the one that brought the case to the attention of the Department of Justice.

Securities Fraud
Our securities fraud lawyers are committed to helping our clients recover their financial losses. The most common investor claims against brokers and investment advisers can involve issues such as:

• Unsuitability
• Registration violations
• Margin account abuse
• Unauthorized trading
• Breach of fiduciary duty
• Breach of contract
• Failure to execute trades
• Overconcentration
• Negligence
• Churning
• Misrepresentation and omissions
• Failure to supervise

Read the guilty plea, Justice.gov, November 24, 2010 (PDF)

Former Smith Barney adviser admits $3 million fraud, Reuters, November 24, 2010

Former Smith Barney adviser admits $3 mln fraud, CNBC, November 24, 2010

Continue reading "Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients" »

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Posted In: Citigroup , Financial Firms , Smith Barney - Citigroup

November 30, 2010

Citigroup Seeking to Dismiss $11.6 Million Securities Arbitration Award to “Dallas” TV Star Larry Hagman

TV star Larry Hagman, best known for playing the roles of Texas oil tycoon JR Ewing on “Dallas” and Major Anthony Nelson on “I Dream of Jeannie,” recently won an $11.6 million securities fraud arbitration award against Citigroup. The Financial Industry Regulatory Authority says that the award is the largest that has been issued to an individual investor for 2010 and the ninth largest ever. Citi Global Markets is now seeking to dismiss the award.

The investment firm contends that the arbitration panel’s chairman did not disclose a possible conflict of interest. In its petition, Citi cites a FINRA rule obligating arbitrators to reveal such conflicts that could prevent them from issuing an impartial ruling. The financial firm claiming that because the arbitration panel head was once a plaintiff in a lawsuit that dealt with the same type of claims and subject matter, he had an undisclosed potential conflict. Hagman’s legal team have since responded with a memo arguing that the arbitrator’s lawsuit was not related to this complaint and did not involve a securities investment, the same parties, or the same facts.

Hagman and his wife Maj had accused Citigroup of securities fraud, breach of fiduciary duty, and other allegations. They claimed financial losses on bonds and stocks and a life insurance policy. In addition to the arbitration award, which consists of $1.1 million in compensatory damages and $10 million in punitive damages that will go to a charity of Hagman’s choice, Citigroup must also pay a 10% interest on the award.

Related Web Resources:
Messing With J.R., Take Four, NY Times, November 23, 2010

Actor Larry Hagman Wins $12 Million in Finra Case With Citigroup, Bloomberg, October 7, 2010

Citigroup's petition to dismiss award to Larry Hagman

Citigroup, Stockbroker Fraud Blog

Continue reading "Citigroup Seeking to Dismiss $11.6 Million Securities Arbitration Award to “Dallas” TV Star Larry Hagman " »

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Posted In: Arbitration , Citigroup , FINRA , Financial Firms

October 23, 2010

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge

A federal judge has approved the $75 million securities fraud settlement reached between Citigroup and the US Securities and Exchange Commission. The investment bank had been accused of misleading investors about billions of dollars in possible losses from their exposure to high risk assets involving subprime mortgages. The SEC says that although holdings exceeded $50 billion, the broker-dealer had told clients that they were at $13 billion or lower.

US District Judge Ellen Segal Huvelle had initially refused to approve the settlement and questioned why only two Citigroup executives were being held accountable for the alleged misconduct. Last month, she said she would accept the agreement but only with certain conditions in place.

Under the approved accord, Citigroup must maintain an earnings committee and a disclosure committee for three years. A number of bank officials will also have to certify the accuracy of the earnings scripts and press releases. The revised settlement clarifies that the $75 million penalty is part of a Fair Fund pursuant to Section 308 of the Sarbanes-Oxley Act of 2002. The penalty will be distributed to investors that sustained financial losses because of Citigroup’s alleged misconduct.

Broker-dealers and their representatives can be held liable for misrepresenting or not presenting all material facts to an investor about his/her investment if that client ends up sustaining financial losses. By agreeing to settle, Citigroup is not denying or admitting to the allegations.

Related Web Resources:
Judge OKs Citigroup-SEC Accord on Mortgages, ABC News, October 19, 2010

Judge approves Citi's $75M settlement with SEC, Bloomberg Businessweek, October 19, 2010

Read the SEC Complaint (PDF)

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million, Stockbroker Fraud Blog, August 3, 2010

Continue reading "Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge" »

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Posted In: Citigroup , Financial Firms , Mortgage Backed Securities

August 3, 2010

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million

For $75 million, Citigroup will settle federal allegations that it failed to disclose that its subprime mortgage investments were failing while the market was collapsing. This is the first securities fraud case centered on whether investment banks fairly disclosed their own financial woes to shareholders.

Unlike the Goldman Sachs case, which resulted in a $550 settlement and involved allegations that the investment bank misled investors, Citigroup is accused of misleading its shareholders. This also marks the first time the SEC has filed securities fraud charges against very senior bank executives for their alleged roles in subprime mortgage bonds.

The SEC contends that Citigroup failed to reveal the true nature of its financial state until November 2007. Just that summer the investment bank told investors that it had about $13 billion of exposure to subprime mortgage related-assets that were declining in worth. However, Citigroup left out about $43 billion of exposure to similar assets that bank officials thought were very safe.

Key evidence against Citigroup centers on an announcement that it prepared for investors that cautioned that the quarter was likely going to be one of lower earnings in the fall of 2007. However, the investment bank did not reveal its full subprime exposure. Former Citigroup investor relations head Arthur Arthur Tildesley Jr., who has agreed to pay an $80,000 fine over allegations he omitted key information in the shareholder disclosures, is accused of preparing the statement. Former chief financial officer Gary L. Crittenden, who has settled the SEC case against him for $100,000, recorded the audio message to investors.

The government was eventually forced to bail out the investment bank. Citigroup is not admitting to or denying the charges by consenting to settle. Now, however, the investment bank has to defend itself from private shareholder complaints.

Related Web Resources:
SEC Charges Citigroup and Two Executives for Misleading Investors About Exposure to Subprime Mortgage Assets, SEC, July 29, 2010

Citigroup Pays $75 Million to Settle Subprime Claims, NY Times, July 29, 2010

Citigroup agrees $75m fraud fine, BBC News, July 29, 2010

Continue reading "Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Citigroup , Financial Firms , SEC Enforcement , Securities Fraud , Subprime Mortgage

May 28, 2010

Citigroup to Pay $1.5 M for Supervisory Violations Related to Broker’s Handling of Trust Funds

According to the Financial Industry Regulatory Authority, Citigroup Global Markets Inc. has consented to pay $1.5 million in disgorgement and fines for failing to properly supervise broker Mark Singer and his handling of trust funds belonging to two cemeteries. By agreeing to settle, Citigroup is not denying or admitting to the charges. Also, the disgorgement amount of $750,000 will be given back to the cemetery trusts as partial restitution.

FINRA says that from September 2004 and October 2006, Singer and his clients Craig Bush and Clayton Smith were engaged in securities fraud. Their scheme involved misappropriating some $60 million from cemetery trust funds. Bush and Smart were the successive owners of the group of cemeteries in Michigan that the funds are believed to have been stolen from. Smart bought the cemeteries from Bush in August 2004 using trust funds that were improperly transferred from the cemeteries to a company that Smart owned.

When Singer went to work for Citigroup as a branch manager in September 2004, he brought Bush’s cemetery trust accounts with him. FINRA says that Singer then helped Smart and Bush open a number of Citigroup accounts in their names and in the names of corporate entities that the two men controlled or owned. The broker also helped them deposit cemetery trust funds into some of the accounts, as well as effect improper transfers to third parties. Some of the fund transfers were disguised as fictitious investments made for the cemeteries.

FINRA says that Citigroup failed to properly supervise Singer when it did not respond to “red flags” and that this lack of action allowed the investment scheme to continue until October 2006. As early as September 2004, Singer’s previous employer warned Citigroup of irregular fund movements involving the Michigan cemetery trusts. Within a few months, Citigroup management also noticed the unusual activity.

Citigroup failed to “conduct an adequate inquiry” even after finding out in February 2005 that Smart may have been making misrepresentations about his acquisition of hedge fund investments that belonged to the Michigan cemetery trusts and had used the hedge funds as collateral for a $24 million credit line. Although the investment bank had received a whistleblower letter in May 2006 accusing Singer of broker misconduct related to his handling of the cemetery trusts, it still failed to restrict Singer’s activities or more strictly supervise him.

Related Web Resources:
Citi Sanctioned $1.5M By Finra In Supervisory Lapse, The Wall Street Journal, May 26, 2010

Stealing from the dead, CNN Money, August 13, 2007

Continue reading "Citigroup to Pay $1.5 M for Supervisory Violations Related to Broker’s Handling of Trust Funds" »

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Posted In: Broker Fraud , Citigroup , FINRA , Financial Firms , Securities Fraud

March 31, 2010

UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010

U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010

Read the letter to District Judge Marrero (PDF)


Continue reading "UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam " »

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Posted In: Bank of America , Bear Stearns , Citigroup , Financial Firms , J P Morgan - Chase , Lehman Brothers , UBS , Wachovia , Wells Fargo

March 3, 2010

Citigroup Ordered to Defend Against Securities Fraud Allegations by Terra Securities of Norway and Several Norwegian Municipalities

A district court judge has denied Citigroup’s motion that the securities fraud lawsuit filed against it by Terra Securities of Norway and seven Norwegian municipalities be dismissed. The plaintiffs claim that Citi misrepresented the risk involved in the $115 million in securities they bought in May and June 2007. They are seeking over $200 million in compensatory damages.

Judge Victor Morrero rejected Citibank’s claim that the U.S. District Court for the Southern District of New York lacked jurisdiction over the case because the financial losses happened in Norway. The plaintiffs had argued that their securities fraud claims are a result of Citigroup’s conduct in New York.

In their securities fraud complaint, the plaintiffs are claiming that Citigroup sold fund-linked securities as if they were conservative, safe investments. In fact, the notes, which were tied to the Citi Tender Option Bond Fund, are very high risk.
The municipalities bought the derivatives through Terra.

In the months following their purchase, the notes would go on to significantly drop in value. Terra went bankrupt and the municipalities had to reduce funding that was intended for hospitals, libraries, schools, and social services. One of the plaintiffs, the municipality of Narvik, was forced to turn off street and road lights at night. This is an area experiences limited daylight hours during the winter. The other municipalities that are plaintiffs of this securities fraud lawsuit are Bremanger, Hemnes, Hattfjelldal, Rana, Kvinesdal, and Vik.

The plaintiffs' securities fraud lawyer says that the judge’s ruling affirms foreign plaintiffs’ right to sue Citigroup for alleged fraud that occurred in NY over notes that were marketed abroad. Citigroup, which had pushed to have the case heard in Norway or England, denies any wrongdoing. The investment bank says it will vigorously defend against the charges.

Related Web Resources:
Citigroup Must Defend Norwegians’ Lawsuit Over Notes, BusinessWeek, February 17, 2010

Citigroup Must Defend Suit Over Derivatives Sales In Norway, Wall Street Journal, February 17, 2010

Continue reading "Citigroup Ordered to Defend Against Securities Fraud Allegations by Terra Securities of Norway and Several Norwegian Municipalities" »

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Posted In: Citigroup , Financial Firms , Securities Fraud

December 18, 2009

Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research

The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.

FINRA - formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.

"FINRA does not reveal names of firms that have received sweep letters," said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.

Continue reading "Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research" »

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Posted In: Citigroup , Goldman Sachs , J P Morgan - Chase , Morgan Stanley

November 28, 2009

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”


Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009

Citi sued over auction-rate securities, Reuters, April 17, 2009

Continue reading "Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court" »

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Posted In: Auction-Rate Securities , Citigroup , Financial Advisers

October 29, 2009

Citigroup, AK Capital, National Financial Services, and Tradestation Fined and Censured by NYSER Over Trade Violations

The New York Stock Exchange Regulation Inc. has censured and fined four firms for trade violations. The four investment firms, Citigroup, AK Capital, National Financial Services, and Tradestation, agreed to the censures and fines but did not admit to or deny wrongdoing.

According to NYSER:

• Citigroup Global Markets Inc. allegedly cancelled 365 market-on-close (MOC) orders after the cutoff time at 3:40 ET on four 2007 trade dates and submitted, between December 9 2008 and January 5, 2009, 12,480 limited-on-close (LOC) orders after the cutoff time on 18 trade dates. Citigroup was ordered to pay a $150,000 fine.

• National Financial Services, LLC employees allegedly engaged in wrongdoing related to LOC and MOC orders it made on eight trade dates between 2006 and 2008. NFS also allegedly neglected to properly supervise these employees. The firm agreed to a $75,000 fine.

• Tradestation allegedly failed to oversee and put into place adequate internal compliance controls, took part in conduct not in line with the fair and equitable trade principals involving odd-lot orders, and neglected to find out necessary facts about certain orders and clients. Tradestation agreed to a $100,000 fine.

• AK Capital allegedly failed to use background checks on employees, failed to set up written policies designed to prevent the misuse of material nonpublic data, and failed to review trade confirmations and certain clients’ monthly account statements. The NYSE Arca options-trader registrant also allegedly neglected to keep records and books that accurately showed all liabilities, assets, capital accounts, and income expenses. The firm agreed to a $20,000 fine.

Related Web Resource:
Monthly Disciplinary Actions - October 2009, NYSE Regulation

Continue reading "Citigroup, AK Capital, National Financial Services, and Tradestation Fined and Censured by NYSER Over Trade Violations" »

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Posted In: Citigroup , Financial Firms , TradeStation Securities

October 12, 2009

Citigroup ordered to pay $600,000 FINRA fine for inadequate supervision that may have allowed foreign clients to avoid paying taxes on dividends

Citigroup, Inc. has agreed to pay a $600,000 Financial Industry Regulatory Authority fine to settle claims that its alleged inadequate supervision of certain derivative transactions between 2002 and 2005 allowed a number of foreign clients to avoid paying taxes on dividends.

The way this allegedly worked is that during a period of dividend payments, the customer would sell stock to Citigroup. The bank would pay the client an income equal to the dividend. It would also pay any share price increase.

FINRA is accusing Citigroup of failing to control trades and failing to prevent improper trades, both internally and with trading partners. The dividend equivalent that certain foreign Citigroup clients obtained was not considered subject to withholding taxes. Citigroup's strategy was allegedly intended to lower its tax bill.

By agreeing to pay the $600,000 fine, Citigroup is not admitting to or denying the allegations.

The US Senate has created an inquiry into accusations that certain Wall Street firms manipulated derivatives and stock-loans so that clients could avoid hundreds of millions of dollars in taxes. The Financial Times is reporting this amount to be in the billions of US dollars.

The Senate’s Permanent Subcommittee on Investigations says that Citibank paid the IRS $24 million over the allegations and worked to give the agency full disclosure.

Throughout the US, our stockbroker fraud lawyers represent institutional and individual investors who have sustained financial losses because of broker-dealer fraud or other misconduct.

Related Web Resources:
Citigroup slapped with $600,000 fine from FINRA, American Banking News, October 13, 2009

Citigroup fined over tax strategies, Boston.com, October 13, 2009

Citigroup agrees to pay fine, Kansas City, October 12, 2009

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Citigroup , FINRA , Financial Firms

September 28, 2009

UBS Securities, Citigroup Global Markets, and Deutsche Bank Securities Agree to FINRA Sanction Over Vonage IPO

Citigroup Global Markets, Deutsche Bank Securities, and UBS Securities have agreed to pay fines for Financial Industry Regulatory Authority sanctions over their handling of Vonage LLC stock's initial public offering in 2006. FINRA says that the firms’ failure to adequately supervise communications with customers cost investors hundreds of thousands of dollars. By agreeing to settle, none of the broker-dealers are agreeing to or denying wrongdoing.

The three firms acted as the Vonage offering’s lead underwriters. A “directed share program” was included. Clients used accounts with the broker-dealers to purchase about 4.2 million shares.

An external company designed and administered a Web site for DSP participants that the firms’ clients used to communicate about the IPO. According to the SRO, however, inadequate supervision and the failure to follow procedures regarding outside sourcing and directed share programs resulted in the broker-dealers being unable to respond appropriately or take effective action when certain clients obtained misinformation about their orders.

By the time customers were finally notified that shares were allocated to them, the Vonage stock price had dropped significantly compared to the offering price. In addition to paying the higher price, investors sustained financial losses when the stocks were sold.

UBS, Citigroup, and Deutsche Bank have agreed to fines totaling $845,000. UBS will pay a $150,000 fine and a maximum of $118,000 to 26 clients who are potentially eligible. In addition to its $175,000 fine, Citigroup will pay 284 potentially eligible customers a maximum of $250,000. Deutsche Bank will pay 59 potentially eligible clients a maximum of $52,000, plus its $100,000. Customers are to be compensated the difference between Vonage stock’s price when clients found out they had been allocated shares and the $17/share IPO price that they paid.


Related Web Resources:
FINRA Fines Citigroup Global Markets, UBS and Deutsche Bank $425,000, Orders Customer Restitution for Supervisory Failures in Vonage IPO, FINRA, September 22, 2009

Citi, UBS, Deutsche Fined Over Vonage IPO

Continue reading "UBS Securities, Citigroup Global Markets, and Deutsche Bank Securities Agree to FINRA Sanction Over Vonage IPO" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Broker Fraud , Citigroup , Deutsche Bank , Financial Firms , UBS

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