BACK in 1940, a popular book about Wall Street asked, “Where are the customers’ yachts?” Investment firms, it lamented, always seemed to win, even when their customers lost.
True then and, all too often, true now — with rare exceptions. One of them was the case of Gerald D. Hosier and Jerry Murdock Jr., who invested millions with Citigroup, lost big — and came back swinging.
Documents related to the case show how Citigroup pushed exotic investments as safe alternatives to humdrum municipal bonds. The paperwork, which was unsealed recently, makes for fascinating, if disheartening reading.
First, some background. Mr. Hosier and Mr. Murdock are the kind of customers everyone in the investment business covets. Which is to say, they’re prosperous. The two were clients of Citigroup’s wealth management business, which, like its counterparts at other investment firms, takes a particular interest in high-net-worth people.
But Mr. Hosier and Mr. Murdock were not happy customers. They accused Citigroup of fraud and breach of fiduciary duty, saying they had been misled about complex, risky investments that Citigroup had held out as safe and sound.
Last April, a securities arbitration panel agreed with them. The men won the largest sum ever awarded to individuals in such a proceeding — a total of $54.1 million. Most of that was compensation for their losses. But some $17 million consisted of punitive damages. An additional $3 million went to cover legal fees.
Given that harsh judgment, something about this case clearly disturbed the arbitrators. But because such proceedings are confidential, outsiders didn’t know the details — until, that is, Citigroup asked a United States district court to overturn the award.
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