Citigroup Inc. (C) recently won a legal order to block an arbitration case filed by a Saudi Arabian investor, Ghazi Abbar. Abbar, along with his father, had filed a $383 million case in 2011, charging Citigroup Global Markets Inc. of mishandling the investments made by his family.
After an 8-day trial in Manhattan court, U.S. District Judge Louis Stanton granted an injunction blocking Abbar from arbitrating the case before the Financial Industry Regulatory Authority (:FINRA).
The lawsuit filed by Abbar and his father claimed that they incurred losses in their investment due to Citigroup's irresponsible and fraudulent behavior. The agreement, according to them, was prearranged to capitalize on their investment and make profits for the company.
In the later half of 2005, Abbar entered into a complex investment transaction with Citigroup after his family moved assets from Deutsche Bank AG (DB) to Citigroup.
Under the agreement, Abbar placed $343 million of their hedge fund investment assets into Citigroup as part of a set of intricate leveraged option transactions. However, the plaintiffs alleged that the investment malfunctioned during the financial crisis, causing a loss of $383 million.
After the filing of the arbitration, Citigroup appealed for the discontinuation of the lawsuit. The bank claimed that Abbar was not a client of its broker-dealer segment, and the transactions were made instead by non-U.S. Citigroup units.
Lawsuits pertaining to whether an individual qualifies as a client have become common with complainants seeking to recuperate losses incurred during the financial crisis. Some of these claimants prefer FINRA over courts because court proceedings often drag for years. Moreover, arbitrations are difficult to get reversed as compared to a ruling in a federal court.
However, Stanton ruled that Abbar did not legally qualify as a customer of Citigroup Global Markets Inc. – a subsidiary of Citigroup – as his account was with the London-based unit, and not the N.Y. unit.
Citigroup’s credentials have been tainted by mounting litigation worries in recent times, which are proving to be an overhang on financials. However, the abovementioned ruling is a relief for the Bank.
Citigroup currently carries a Zacks Rank #3 (Hold). Better performing banks include State Street Corporation (STT) and JPMorgan Chase & Co. (JPM). Both these carry a Zacks Rank #2 (Buy).
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