Judge blocks auction rate arbitration against Citigroup

Mon May 6, 2013 3:14pm EDT
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By Nate Raymond

NEW YORK (Reuters) - For the second time in a week, a federal judge has blocked a securities arbitration against Citigroup Inc (C.N: Quote), allowing the bank to avoid fighting a multi-million dollar case before Financial Industry Regulatory Authority arbitrators.

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, 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 arbitration.

"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.   Continued...

A man walks past a Citibank branch in lower Manhattan, New York October 16, 2012. REUTERS/Carlo Allegri