* Court says plaintiff can't press ahead with arbitration
* Case involves $223 mln in auction-rate securities
By Nate Raymond
NEW YORK, May 6 For the second time in a week, a
federal judge has blocked a securities arbitration against
Citigroup Inc, allowing the bank to avoid fighting a
multi-million dollar case before Financial Industry Regulatory
Banks have repeatedly challenged whether large plaintiffs
can bring cases over damages incurred during the financial
crisis as arbitrations before FINRA, the financial industry's
self-regulator, rather than in the courts. Some plaintiffs
prefer FINRA as a venue, in part because the arbitration process
is considered quicker than if a dispute plays out in court.
At a hearing on Friday, U.S. District Judge Jesse Furman in
Manhattan entered a preliminary injunction preventing North
Carolina Eastern Municipal Power Agency from moving forward with
an arbitration, a Citigroup spokeswoman said.
The case stemmed from the agency's issuance of $223 million
in auction rate securities underwritten by Citigroup.
Auction rate securities are a type of bond where investors
placed bids that set interest rates. The market for the
securities collapsed in February 2008 when banks stopped
propping it up through support bids.
The agency, which provides wholesale power to 32 cities in
North Carolina, filed an arbitration in December 2012 accusing
Citigroup of misrepresenting its role in supporting the market.
The bank brought the federal lawsuit to try to escape the
"We are pleased with the decision in this matter," said
Danielle Romero-Apsilos, the Citigroup spokeswoman.
James Swanson, a lawyer for the power agency at Fishman
Haygood Phelps Walmsley Willis & Swanson, did not respond to a
request for comment.
Last Thursday, U.S. District Judge Louis Stanton in
Manhattan entered a permanent injunction preventing Saudi
Arabian investor Ghazi Abbar from pursuing a $383 million
arbitration case before FINRA. Abbar had accused Citigroup of
"virtually wiping out" his family's wealth.
FINRA become an attractive venue in recent years for some
plaintiffs with big cases, as it can take much longer for a
securities lawsuit to make it to trial in U.S. courts than for a
dispute to be resolved at arbitration. Arbitration awards are
also generally more difficult to overturn than a jury verdict on
Increasingly large awards began spilling out of FINRA as a
result of the economic meltdown that began in 2008. Of the 10
largest U.S. securities arbitration awards ever, seven were
issued since that year, according to Securities Arbitration
The largest during that period was a $406.6 million award
STMicroelectronics NV won in February 2009 in a case
against a unit of Credit Suisse Group AG over
By April 2012, the number of arbitrations pending with more
than $10 million at stake had hit around 200, according to a
FINRA spokeswoman. The number has since dropped to 180, she
The figure mirrors a decline in cases of all sizes overall
as the 2008 stock market collapse moves further into the
In disputes over whether these arbitrations can go forward,
the arguments generally have focused on whether the plaintiffs
constituted a "customer" of a broker-dealer under FINRA rules
and could bring an arbitration, or whether plaintiffs agreed
despite their customer status to have their disputes heard in
In the North Carolina case, Citigroup said while FINRA rules
say broker-dealers and customers must arbitrate their cases if
the customer asks for it, the bank and power agency contracted
out of the system and agreed instead to have any dispute heard
in Manhattan federal court.
While Citigroup succeeded in winning an injunction, in other
lawsuits banks have failed to block arbitrations.
In January, the 4th U.S. Circuit Court of Appeals allowed
Roanoke, Virginia-based Carilion Clinic to proceed with an
arbitration against UBS AG and Citigroup over $234
million in auction rate securities.
The case is Citigroup Global Markets, Inc. v. North Carolina
Eastern Municipal Power Agency, U.S. District Court, Southern
District of New York, No. 13-01703.