| NEW YORK
NEW YORK Aug 1 A Saudi investor who accused
Citigroup Inc of "virtually wiping out" his family's
fortune cannot pursue a $383 million arbitration case filed
against the bank, a U.S. appeals court ruled.
The 2nd U.S. Circuit Court of Appeals in New York said Ghazi
Abbar could not pursue a Financial Industry Regulatory Authority
(FINRA) arbitration he initiated in 2011 against a New York
subsidiary of Citigroup because Abbar was a customer of a United
Kingdom subsidiary, not the New York affiliate.
"Citi NY employees certainly provided services to Abbar,"
wrote Circuit Judge Dennis Jacobs for a unanimous three-judge
panel. "However, Abbar did not purchase those services from Citi
NY. His investment agreements were with Citi UK, and the fee for
all services ... was paid to Citi UK."
The decision, which upheld a 2013 ruling by U.S. District
Judge Louis Stanton, is the latest to analyze what constitutes a
"customer" under rules for securities arbitration before FINRA,
the financial industry's self-regulator. Legal battles over the
issue have become commonplace as plaintiffs seek to recover
losses stemming from the financial crisis.
Some plaintiffs prefer FINRA arbitration rather than the
court system, where lawsuits can get bogged down in years of
litigation. But banks have filed a series of lawsuits
challenging investors' ability to do so.
The ruling was the first time the 2nd Circuit has defined a
"customer" under FINRA regulations.
"We hold that a 'customer' under FINRA Rule 12200 is one
who, while not a broker or dealer, either (1) purchases a good
or service from a FINRA member, or (2) has an account with a
FINRA member," Jacobs wrote.
A Citigroup spokeswoman said the bank was pleased with the
ruling. A lawyer for Abbar did not respond to a request for
Abbar and his father brought the arbitration in August 2011
against Citigroup Global Markets Inc, a New York subsidiary of
The Abbars said that after Ghazi Abbar's private banker
moved from Deutsche Bank AG to Citigroup in late
2005, the Abbars bought several complex options from Citigroup
Global Markets Ltd, a United Kingdom subsidiary.
Under the structure, created by the bank, the Abbars
contributed $343 million in hedge fund investment assets as part
of a leveraged transaction.
The investment eventually collapsed during the financial
crisis, causing $383 million in losses, including a failed
private equity loan deal, the Abbars said.
The elder Abbar died last year, but Ghazi Abbar continued to
pursue the case, claiming the bank deceived them about the
Citigroup filed the lawsuit seeking to block the arbitration
soon after it was initiated, and Stanton ruled in the bank's
favor after an eight-day non-jury trial.
The case is Citigroup Global Markets, Inc v. Abbar, 2nd U.S.
Circuit Court of Appeals, No. 13-2172.
(Reporting by Joseph Ax; Editing by Tom Brown)