Appellate Division of NY Supreme Court Tosses $10.8 Million FINRA Investor ARB Award Against Citi Based on Manifest Disregard of the Law and Prior Settlement
13th April 2015
A New York Appeals Court affirmed a New York Supreme Court decision to vacate a $10.8 million FINRA arbitration award to a former Citigroup customer, finding that the arbitrators failed to enforce a settlement between the parties that was reached before arbitration took place. Interestingly, the Court also noted that “although arbitrators have no obligation to explain their awards, when a reviewing court is inclined to hold that an arbitration panel manifestly disregarded the law, the failure of the arbitrators to explain the award can be taken into account”.
The Appellate Court upheld the Supreme Court ruling that a FINRA arbitration panel manifestly disregarded the law by failing to enforce a prior settlement agreement and should have ordered Citigroup to pay the customer $800,000, based on such settlement agreement, instead of ordering the firm to pay almost $10.8 million over claims that it failed to protect the customer’s investments in the Royal Bank of Scotland Group PLC (“RBS”) after the bank's stock plummeted in the 2008 financial crisis. RBS, which is now primarily owned by the British government, was hit hard as a result of the subprime crisis and meltdown.
The underlying claim arose in 2010 when the customer filed a FINRA arbitration claim against Citibank and its’ former manager for breach of fiduciary duty, gross negligence, failure to supervise and control, breach of contract and negligent retirement. The customer opened a Citigroup account to hedge risks to his investments in RBS and ended up losing more than $15 million in investments after the bank failed. The customer claimed that he stated his concerns to Citigroup, which declined to do anything. Citigroup says that the customer didn’t take the bank’s advice and ignored the illiquidity of his portfolio and declined to diversify his holdings.