Citigroup Stock Losses

Full-Service Brokerage Firms Who Failed to Recommend Risk Management Strategies to Protect Concentrated Positions in Citigroup Stock May Be Found Responsible for Damages

Citigroup investors who acquired shares through investment, employment, inheritance or as a founding member of a predecessor bank, and maintained large concentrated stock positions with full-service brokerage firms may recover losses for sales practice violations. Full-service brokerage firms are obligated to give, and investors are entitled to rely upon, brokerage firms for competent, suitable investment advice concerning risk management strategies for concentrated stock positions. Brokerage firms are required to supervise the activities in brokerage accounts, losses from concentrated stock positions can be attributed to the failure to adequately supervise the stockbroker and the brokerage account. Investment losses in Citigroup stock that are the result of unsuitable investment advice and/or failure to recommend appropriate risk management strategies for unprotected concentrated stock positions are both causes of action that may be available to investors against their full-service brokerage firm in an individual securities arbitration claim filed with the Financial Industry Regulatory Authority, FINRA.

Government Bailout of Citigroup Results in Diluted Ownership for Shareholders

The modern era of bank holding company conglomerates was considered by many to have begun with the merger of Citicorp and Travelers Group, in 1998. Sandy Weill, the legendary Chairman and CEO of Citigroup, anticipated the final repeal of the Glass Steagall Act with the enactment of the Gramm-Leach-Bliley Act passed in 1999. Travelers was spun off in 2002, Citigroup opened the door, as the largest financial services conglomerate in the world offering a mix of commercial banking, investment banking, insurance underwriting and brokerage operations throughout the world.

Citigroup’s status as a world leader in financial services came crashing down along with the real estate market. Citigroup leveraged its balance sheet with Collateralized Debt Obligations (CDO) and Mortgage Backed Securities (MBS) which exposed the company to systemic risks which were not properly managed. Citigroup’s capital was eroded from mounting losses to the point of insolvency. First, Citigroup sought access from the capital markets through the issuance of Preferred Stock Series AA, E, F and T. The U.S. Government TARP program invested $25 billion in TARP Series H Preferred Stock issued by Citigroup to infuse needed capital. Citigroup suspended the dividend on the common and preferred shares to conserve their capital base. On February 29, 2009, Citigroup announced an Exchange Program which converted outstanding preferred stock for common stock issued at a conversion price of $3.25 per share.

Today, Citigroup’s existing shareholder interests have been diluted by the U.S. Government Bailout. Many investors maintain concentrated stock positions due to personal reasons such as tax deferral, restricted stock grants (Rule 144), employee stock options, or any number of considerations. There is a specific risk management strategy that is suitable for each investor holding a concentrated stock position.

According to financial industry standards of care, when an account is concentrated in a particular stock such as Citigroup stock an investor assumes potentially catastrophic risks and is considered unsuitable for risk adverse investors who do not implement risk management strategies to protect the value of the concentrated position. If the financial advisor fails to recommend the suitable risk management strategy for an investor’s particular circumstance, there is a potential claim for negligence and a failure to supervise the activities in the account. Citigroup investors should consider what recourse is available to recover their investment losses for shares held with a full-service brokerage firm.