Citi to Pay $54M in Muni Case - Analyst Blog
April 13 2011 - 8:45AM
Zacks
Citigroup Inc. (C) has been fined $54.1 million
in a municipal hedge fund case. The company has been ordered by an
arbitration panel of the Financial Industry Regulatory Authority to
pay two individual investors $34.1 million in compensatory damages
for their losses over several municipal bond hedge funds during the
financial crisis. Additionally, Citi also faces fines of $17
million in punitive damages and $3 million in legal fees and other
costs.
The two individual investors, Jerry Murdock Jr. and Gerald
Hosier, had suffered huge losses in municipal bond hedge funds that
were launched by Citigroup Global Markets Inc. They had filed for
claims in mid 2009 for such losses.
It was alleged that Citi had misled investors regarding risks
involved with such funds, which were said to be much more risky
than what Citi had projected while marketing. The funds in question
are also subject to a Securities and Exchange Commission
investigation.
Citi is, however, disappointed with the decision and believes
that it is not supported by facts or law and is in fact considering
its options.
Citi is not the only company to be penalised so heavily and
asked to pay such a hefty amount to individual investors under
arbitration procedures. In 2006, Ameriprise Financial
Inc. (AMP) was ordered to pay $20.2 million to a group of
individuals for some issues related to variable annuities and
mutual funds sale.
We believe that such penalization is good news for investors who
suffered significant losses due to misleading activities and
misrepresentations of companies related to investment risks.
However, such fines tarnish a company’s reputation and put its
financials at stake.
Citi currently retains a Zacks #3 Rank, which translates into a
short-term ‘Hold’ rating. Considering the stock fundamentals we
also have a “Neutral” recommendation.
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