FINRA Arbitration Claimants Can't Deliver UPS Case Against Citigroup

June 2, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2009, the Claimants alleged various causes of action including breach of fiduciary duty, suitability, fraud, negligence, and failure to supervise in connection with their purchase of UPS stock. Ultimately, Claimants sought at least $4.5 million in compensatory damages plus additional damages, costs, and fees. In the Matter of the FINRA Arbitration Between Cleveland Currie and Maria Currie, Claimants, vs. Citigroup Global Markets, Inc., Respondent (FINRA Arbitration 09-02155, May 26, 2011).

Respondent Citigroup generally denied the allegations, asserted various affirmative defenses, counterclaimed on the basis of breach of contract. During the arbitration hearing, Respondent requested the expungement of this matter from the Central Registrtation Depository ("CRD") records of unnamed party Paul Babaz.

AWARD

The FINRA Arbitration Panel denied Claimants' claims and Respondent's counterclaim. Further, the Panel recommended the expungement of all reference to arbitration from Babaz's CRD records subject to Notice to Members 04-16: Expungement.

Expungement

The Panel characterized Respondent's case as arguing thatBabaz, acting on Respondent Citigroup's behalf, failed to diversify Claimants' highly concentrated, highly leveraged position in UPS stock - Claimant's alleged that Babaz chose the UPS stock to collateralize a "PAM loan" (this loan is not explained by name beyond that reference).

In considering the request for expungement, the Panel noted that:

Not only did the Respondent's witnesses refute this contention, but Mr. Currie himself testified that he rejected Mr. Babaz's advice to liquidate a large amount of UPS stock and to pay down the margin loan. The evidence shows that Mr. Babaz diversified the Claimants' portfolio to the extent authorized by the Claimants. It is also the reason why the PAM loan was collateralized by stock. There was no request by the Claimants to use cash as collateral and. in fact, such a contention was contradicted by the evidence that Mr. Currie wished to hold onto his UPS stock position. In addition, the Claimants' accountant, who serviced similarly situated active and retired UPS employees was called by the Claimant. He also stated that many UPS employees and retirees felt the same as Mr. Currie and did not liquidate their UPS positions. The prepaid forward contracts, such as the ones Mr. Babaz obtained for Mr. Currie were suitable and successful products for such persons.

There was no evidence submitted to demonstrate that Mr. Currie did not or could not understand how the prepaid forward contract worked or that he was not given literature and advice on the risks involved with the product. No reasonable view of the facts established at the hearings, including the testimony of the Claimants' witnesses, support any of the allegations in the Statement of Claim. The claims are cleariy erroneous.