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Citigroup Ordered to Pay Investors $1 Million Related to Auction Rate Securities

Dow Jones Business News

An arbitration panel has ordered Citigroup Global Markets Inc. to pay more than $1 million to two Texas corporations that claimed the brokerage kept them in auction rate securities when it knew the market was in trouble.

Texas PGI and Paragon Reserve accused the subsidiary of Citigroup Inc. of breach of fiduciary duty, among other charges, in their claim made through the Financial Industry Regulatory Authority’s arbitration system.

The investors had a long relationship with Citigroup, which managed their cash on a discretionary basis, according to Philip Aidikoff, one of the attorneys who represented the investors. “The folks at Citigroup knew certainly by fall of 2007 that it was only a matter of time before the entire auction rate securities market collapsed,” Mr. Aidikoff said. ” But my clients were never told, ‘Maybe you should find a different way to manage your cash.'”

According the Mr. Aidikoff, Citigroup bought even more auction rate securities for his clients’ accounts. The auction rate market froze up in the credit crisis of 2008, leaving many investors unable to sell or redeem their securities.

A spokeswoman for Citigroup said the firm disagrees with the decision and that it is “inconsistent with several other decisions dismissing similar claims.”

The panel determined that Citigroup is liable and must pay the two companies roughly $1 million in compensatory damages. Mr. Aidikoff said this fell short of actual damages, which he said totaled about $1.4 million.