U.S. Judge Blocks $383 Million Arbitration Case Against Citigroup Filed by a Saudi Arabian Investor Who Accused the Bank of 'Virtually Wiping Out' His Family's Wealth

U.S. judge blocks $383 million arbitration case against Citigroup

May 3, 2013

Reuters - Citigroup Inc (C.N) has won an injunction blocking a $383 million arbitration case filed by a Saudi Arabian investor who accused the bank of "virtually wiping out" his family's wealth.

U.S. District Judge Louis Stanton in Manhattan ordered a halt to the Financial Industry Regulatory Authority arbitration initiated by the Saudi investor, Ghazi Abbar, in 2011. The ruling followed an eight-day trial that Stanton heard without a jury.

The late Thursday ruling was the latest court decision to examine what constitutes a "customer" for securities arbitration before FINRA, the financial industry's self-regulator.

Fights over who qualifies as a customer have become common as plaintiffs seek to recover losses suffered in the financial crisis. Some plaintiffs prefer FINRA over courts, where lawsuits are often subject to years of litigation. Arbitration awards are also difficult to get overturned compared with a judgment in a federal court.

While FINRA arbitrations are a frequent forum for disputes between broker dealers and customers, Stanton ruled that Abbar was not legally a customer of a Citi subsidiary, Citigroup Global Markets Inc, which is a member of FINRA and subject to its arbitration rules.

Citing other recent cases, Stanton said courts should look at whether an investor had an account with a FINRA member and made a purchase to establish a rule on who is a customer.

"It gives the financial community reasonable expectations with respect to the rule that will apply," he said.

John Rich, a lawyer for Abbar at Rich, Intelisano & Katz, did not respond to requests for comment. Natalie Marin, a Citigroup spokeswoman, said the bank was "pleased with the decision."

Abbar and his father, Abdullah Mahmoud Abbar, a businessman from Jeddah, Saudi Arabia, involved in food importing, tourism and other businesses, brought the arbitration in August 2011 against Citigroup Global Markets.

In their claim, the Abbars said they were led into an investment that failed due to Citigroup's "reckless and deceitful conduct." The investment was structured to maximize profits to Citigroup to the detriment of the Abbars, the arbitration claim said.

The Abbars said that after Ghazi Abbar's private banker moved from Deutsche Bank AG (DBKGn.DE) to Citigroup in late 2005, the Abbars entered into a complex investment transaction through the bank.

Under the deal, the Abbars placed $343 million of their hedge fund investment assets into a structure created by Citigroup as part of a set of complex leveraged option transactions, according to the plaintiffs.The investment collapsed amid the financial crisis, causing $383 million in losses, the Abbars said.

After the arbitration was filed, Citigroup filed the federal lawsuit to stop the case. The bank contended the Abbars weren't customers of its broker-dealer unit, and instead the transactions were put together through various non-U.S. Citigroup entities.

The elder Abbar died last year, but Ghazi Abbar continued to pursue the case.

The case is Citigroup Global Markets, Inc v. Abbar, U.S. District Court, Southern District of New York, No. 11-06993.