Citigroup Ordered To Pay $3.1 Million For Broker’s Selling Away

By Mani
Updated on

Citigroup Inc (NYSE:C) was ordered by a securities arbitration panel to pay $3.1 million to an Orlando couple for not properly supervising a broker.

Citigroup Ordered To Pay $3.1 Million For Broker’s Selling Away

Suzanne Barlyn in Reuters report the allegation relates to Citigroup Inc (NYSE:C)’s broker steering the couple to invest in a politician’s real estate developments.

Lawsuit on Citigroup for real estate investments

Orlando, Florida couple, Dr. Nasridin Madhany and his wife Zeenat Madhany, filed a case against Citigroup Inc (NYSE:C) in 2010, alleging the bank showed negligence, fraud and other misdeeds involving over $1 million in real estate investments made between 2004 and 2007.

The Financial Industry Regulatory Authority arbitration panel said a Citigroup Inc (NYSE:C) unit must pay $3.1 million to the Florida-based couple.

Though the arbitration panel found Citigroup liable, the latter feels the award was not supported by facts or law.

Selling Away

Suzanne Barlyn in Reuters observes that the case is an example of the liabilities that brokerages can face when their advisers peddle investments privately without the firm’s knowledge. When a broker solicits an investor to purchase securities not held or offered by the brokerage firm, it is termed ‘selling away’. Securities industry rules prohibit such ‘selling away’ practices.

Genesis Of The Case

During 2003, Scott Andrew King, a broker who worked for Citigroup Inc (NYSE:C) between 2002 and 2005, referred the Florida couple, who are in their sixties, to prominent politician Lawton “Bud” Chiles III. The politician was seeking investors for several condominium developments and other real estate projects.

In a claim filed by the Madhany’s family, Scott Andre King allegedly steered the couple to Chiles and the real estate investments without the knowledge of Citigroup Inc (NYSE:C). The broker also allegedly bought two condominiums through Chiles at a discount, highlighting a conflict of interest which the couple alleged the broker should have disclosed.

Both of the real estate projects the couple entered into ran into trouble in 2007 in the aftermath of the U.S. housing market collapse. This has resulted in considerable losses to their investments.

Besides, the couple and several other investors also signed personal loan guarantees relating to a $12 million loan to one of the projects of Wachovia bank. Consequent to the loan default, Wachovia sued the couple and the other investors, resulting in a court entering a $10 million judgment against the group.

Arbitration Panel’s Decision

The Financial Industry Regulatory Authority’s arbitration panel’s recent decision includes over $1 million to cover the couple’s lost real estate investments, besides directing Citigroup Inc (NYSE:C) to pay $2.1 million to cover the couple’s share of the $10 million judgment. Further, the arbitration panel ruled Citigroup must reimburse the couple up to the entire $10 million, in the event they are required to pay the entire judgment amount.

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