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CITI AND MERRILL LOSE ARBITRATION CASES

http://newsandinsight.thomsonreuters.com/Securities/News/2012/09_-_September/Citigroup_must_pay_investor_$1_4_million_for_fund_loss_-_panel/
Citigroup must pay investor $1.4 million for fund loss - panel
Sept 12 (Reuters) -
By Suzanne Barlyn

A Citigroup Inc unit must pay more than $1.4 million to an investor for losses tied to a municipal bond that was marketed as "safe," but was steeped in risky derivative securities, according to an arbitration ruling.

Margaret Hill of New York City had requested more than $3.5 million in damages for losses stemming from Citi's Rochester Municipal Fund, according to a Financial Industry Regulatory Authority arbitration award. She filed the case in 2011, alleging that Citigroup Global Markets Inc sold her unsuitable investments and misrepresented facts, among other things, according to the ruling, dated Sept. 5.

Hill initially owned individual municipal bond funds, but bought the Rochester Fund in 2007 after Citigroup recommended it as a "safe" alternative to her funds that would pay slightly more interest, according to Hill's lawyer, Steven Caruso of Maddox, Hargett & Caruso, P.C. in New York. Instead, the fund consisted mainly of risky derivative securities and tobacco bonds, Caruso said.

The value of derivative securities depends on the performance of underlying assets which can wildly fluctuate. Hill lost $2.9 million when she sold the funds in 2009.

The case highlights questionable sales practices that can affect a range of investors. Wealthy investors, in particular, are often asked to defend their investment choices by brokerage lawyers in arbitration cases, said Caruso, because of a false assumption that they must have a deeper understanding of what they are buying than an average investor. Wall Street often mistakenly equates wealth with financial know-how, Caruso said.

"We disagree with the decision and are disappointed with the outcome," a Citigroup spokeswoman said in a statement.

The panel, as is customary, did not explain the reasons for its ruling. It also denied a request by the Citi broker involved in the transaction to expunge, or erase, details about Hill's arbitration complaint from his public disclosure record.

http://newsandinsight.thomsonreuters.com/Securities/News/2012/09_-_September/Merrill_Lynch_must_pay_$3_6_million_to_Brazilian_banking_heiress/
Merrill Lynch must pay $3.6 million to Brazilian banking heiress
By Suzanne Barlyn
Sept 12 (Reuters) -

Merrill Lynch must pay $3.6 million to an heiress from Brazil who said she lost tens of millions of dollars due to unauthorized trades made by her brother in her account, a securities arbitration panel has ruled.

The ruling, by a Financial Industry Regulatory Authority arbitration panel on Tuesday, is the outcome of a case filed in 2008 in which the heiress, Camelia Nasser de Kassin, asked for more than $21 million in damages.

The case was filed in the name of Sophin Investments SA, a company set up to handle an inheritance Kassin received from an uncle, according to her lawyer, Barry Fischer of New York.

A spokesman for Merrill Lynch, a unit of Bank of America Corp, declined to comment.

The FINRA ruling is just one facet of a larger battle between members of the prominent Nasser banking family from Brazil and Merrill Lynch over various and steep trading losses.

Merrill, in addition to its involvement in the arbitration case, sued three members of the Nasser family in 2008 for massive trading losses, leading to a $99 million judgment that was recently upheld by a New York appeals court.

In the FINRA arbitration, Sophin accused Merrill Lynch of letting her brother, Ezequiel Nasser, make $389 million in unauthorized trades thought accounts at two Merrill Lynch units, according to Fischer.

Nasser, who invested in risky securities such as naked puts in Bear Stearns and Lehman Brothers - a type of options strategy - ultimately left a deficit totaling between $10.4 million and $11.4 million in the two accounts.

Sophin accused Merrill of not supervising its staff, trading without authorization and civil fraud, among other things, according to the arbitration award. Merrill denied the claims and filed a counterclaim against Sophin for breach of contract, seeking a total of $5.5 million for the deficits in the two accounts.

Arbitrators, in the decision on Tuesday, found both parties liable. While Merrill must pay Sophin $6.1 million, Sophin must pay Merrill $2.5 million. The panel admonished Merrill for "lapses in record keeping and supervisory procedures" but said they did not indicate a widespread problem at the company.

Fischer, Kassin's lawyer, said he is "disappointed greatly" by the decision. "The magnitude of the award doesn't make up the damages that Merrill Lynch caused," he said.

Dow Jones reported the award earlier on Wednesday.