A recent front-page Wall Street Journal article by Randall Smith entitled “Citi Debt Funds Probed by SEC,” which concerns Citi’s disastrous MAT/ASTA municipal arbitrage fund, features a highly significant $1.8 million award issued against Citigroup in a MAT/ASTA case by a Financial Industry Regulatory Authority (FINRA) arbitration panel.
The case is Gerald J. Kazma Revocable Trust and Amzak Capital Management, LLC vs. Citigroup Global Markets, Inc. f/k/a/ Citigroup Investment Services, and Citigroup Alternative Investments, LLC, Case No. 09-02697.
As Mr. Smith and the WSJ reported:
“In Miami, Gerald Kazma, a retired cable-TV system developer, invested $4 million in MAT funds in early 2006. According to an arbitration claim he later filed, a Citigroup private banker had told him the return and risk were ‘slightly greater’ than a typical municipal-bond portfolio. Citigroup told the securities-industry arbitration panel the funds’ risks were disclosed to Mr. Kazma.
The panel this year awarded Mr. Kazma $1.8 million, two-thirds of his loss, citing ‘negligent management and negligent supervision’ by Citigroup. Three other investors have won a total of $2.1 million from Citigroup in arbitrations this year, while three claims have been denied.”
The Kazma case is significant because the arbitrators found that Citigroup and Citigroup Alternative Investments, LLC negligently mismanaged the MAT/ASTA funds and negligently supervised their employees. Because Citigroup’s mismanagement of MAT/ASTA began during 2006 through 2007 and continued through early 2008, even early investors in the funds are now eligible to pursue their claims. Thus, claims based on mismanagement and negligent supervision in 2006 and 2007 remain actionable under the laws of most states.
The impact of the decision is that it greatly expands the number of potential clients who can pursue valid claims against Citigroup and its affiliates. The Kazma award also strongly suggests that any MAT/ASTA investor, even a Citigroup employee who had no involvement with the funds, can file a claim for negligent management and may well recover his losses.
After the MAT/ASTA funds lost 80% or more of their value, a group of Citigroup brokers resigned and filed a claim against Citigroup for “constructive discharge,” essentially claiming that Citigroup as-good-as fired them and ruined their careers by mismanaging and misleading them and their clients about the MAT/ASTA funds. “Some of my most trusted clients will never trust my judgment again,” said one of the brokers. The brokers lost their arbitration but may stand to receive 10% to 30% of any recovery in excess of $1 million by the SEC against Citigroup that is under the new Dodd-Frank and SEC whistleblower rules, according to the article.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys have extensive experience in representing investors in FINRA securities arbitrations, including MAT/ASTA investors. For further information, please contact us.