by Brian Mahany
The Financial Industry Regulatory Authority (FINRA) ordered Citigroup to pay $51 million to a group of investors in two municipal bond hedge funds. The decision was the result of an arbitration brought by three investors after the funds dropped by 10 to 60% in 2008.
The decision is significant for many reasons. Citigroup is the third largest bank in the U.S. The award itself is also one of the largest in FINRA’s history. The award is also significant because it includes $17 million in punitive damages. Punitive damages are relatively rare in securities arbitration cases.
The investors in this case were sophisticated high net worth individuals. Frequently FINRA is more protective of unsophisticated investors. That regulators awarded punitive damages against one of America’s largest banks in a case involving sophisticated investors makes this case unique. Clearly the panel believed that Citi deceived its customers about the risks associated with these funds.
The investors say that the funds were very risky despite assurances to the contrary.
Citigroup said it was disappointed with the decision and is considering its options. From our experience, it is quite difficult to overturn an arbitration decision.
Stockbrokers have a duty to fully and fairly explain the risks of any investment they recommend. Unlike an unsolicited order initiated by a customer, brokers must be careful when recommending an investment to not mislead their customers.
If a stockbroker, financial planner or investment advisor provided you bad advice, contact Mahany & Ertl. Our investment fraud lawyers can help you get back your hard earned money. Frequently we can accept these cases on a contingent or “success” fee basis meaning you do not have to pay legal fees unless we win.