Couple Wins Case Against Citigroup
In a rare win for investors seeking redress for biased analyst research, a Boston couple has been awarded $2.41 million in arbitration against Citigroup Inc. and analyst Jack Grubman for his recommendations on WorldCom Inc. stock.
The couple, Joseph M. Salerno and Beverly T. Salerno, claimed they invested $1.12 million in WorldCom stock from 1998 to 2000 based on Grubman’s enthusiastic recommendations of the telecommunications company, and then held on to it as the stock declined because his research notes continued to urge optimism about the company’s future.
WorldCom filed for bankruptcy protection in July 2002 and emerged last year under the name MCI Inc.
“They were relying on Grubman’s research reports,” said Stephen Murakami, an attorney at Hooper & Weiss who represented the Salernos in the NASD’s arbitration forum. “Even when the stock was heading down, it was portrayed as an opportunity to buy more.”
The Salernos won $913,000 in compensatory damages and $1.5 million in punitive damages against Citigroup and Grubman. The three-member arbitration panel didn’t provide any explanation for awarding punitive damages to the Salernos, who had saved up money to invest from Joseph Salerno’s management jobs in the supermarket and pizzeria industries.
Law firm Hooper & Weiss has filed hundreds of NASD (formerly the National Assn. of Securities Dealers) arbitration cases against the New York-based financial services holding company, alleging that tainted research affected investors’ brokerage accounts.
Most of the claims have been denied by arbitration panels.
The onslaught of arbitrations was touched off by a 2003 settlement in which Wall Street firms, including Citigroup, agreed to pay $1.4 billion to resolve regulators’ allegations that they issued overly optimistic stock research to win investment banking business.
Attorneys said they believed that a key factor in winning the Salernos’ case was the use of a confidential Citigroup memo that discussed how instituting a more accurate and balanced stock rating system could hurt the firm’s investment banking relationships.
