Dec 22 (Reuters) - A U.S. judge on Wednesday denied a
request by Citigroup to overturn a $54.1-million arbitration
ruling in favor of a group of investors for losses incurred in
a series of municipal bond funds which plunged in value between
2007 and 2008.
Judge Christine Arguello in Denver, Colorado, disagreed
with Citigroup's arguments, including the latter's assertion
that a Financial Industry Regulatory Authority arbitration
panel disregarded the law in its award, in April, to venture
capital investor Jerry Murdock Jr., retired patent attorney
Gerald D. Hosier, and Brush Creek Capital.
The $54.1 million securities arbitration award was among
the largest that a brokerage firm has had to pay individual
investors, according to the Securities Arbitration Commentator
Inc., a newsletter in Maplewood, N.J. The investors' losses
were tied to six different leveraged municipal bond arbitrage
funds sold by Citigroup Global Markets.
Of the total award, the FINRA panel ruled that Citi must
pay nearly $34.1 million in compensatory damages, $17 million
in punitive damages, and $3 million in legal fees.
Citigroup sold a series of funds through an entity called
MAT Finance LLC. The MAT, or municipal arbitrage trust funds,
borrowed at low short-term rates and invested proceeds in
longer-term muni bonds. But the strategy was ultimately shown
to be flawed and left investors with losses of as much as 80
Citigroup had argued to the court, after the FINRA panel
made its ruling in April, that the investors could not have
relied on certain oral statements that the firm made about
their purchases, because they had signed agreements which
disclosed that they could lose all of their money.
"The court finds (the) argument wholly unpersuasive," wrote
Judge Christine Arguello in an opinion.
Judge Arguello ruled that the FINRA panel wasn't wrong to
award the investors punitive damages and legal fees.
Lawyers for the parties didn't make any oral arguments
before the court, according to Philip M. Aidikoff, a lawyer for
Aidikoff, Uhl & Bakhtiari in Beverly Hills, California, who
represented the investments.
The court's full agreement with all of the investors'
arguments was "startling," he said.
A Citigroup spokeswoman declined to comment.
(Reporting by Suzanne Barlyn and Joseph A. Giannone)
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