Citigroup and one of its branch managers have been ordered by a FINRA panel to pay $11 million to John Fiorilla, a legal adviser to the Pope. Fiorilla brought his business to Citigroup in 2006 and requested that the firm hedge his $16 million exposure to Royal Bank of Scotland, according to On Wall Street.
Although Fiorilla made repeated pleas to Citigroup to hedge the stock, Citigroup did not do so, according to the financial adviser’s attorney. When the stock market crashed in 2008, the value of the account held by the Pope’s adviser dropped in value by more than $15 million.
On Wall Street reported that the legal claim accused the firm of “breach of fiduciary duty, negligence and gross negligence, failure to supervise and control, breach of contract” and other violations. Named was former branch manager, Edward J. Mulcahy, who was accused for “failure to supervise.”
The broker that Fiorilla used was not named in the suit because he had been assured by others at Citigroup that account would be de-risked and he cooperated fully with the investigation. According to reports, Citigroup denies the allegations.
Danielle Romero-Apsilos, a spokesperson for Citigroup, sent the following prepared statement: “We are disappointed with the award, which was not supported by the facts.”
The broker, Mulcahy, began his career in 1982 with Dean Witter Reynolds. Through successive mergers, he ended up at Citigroup, according to FINRA registration records. He recently retired from Morgan Stanley and media outlets reported that he could not be reached for comment regarding the matter.
Initially, Fiorilla requested $15.3 million in compensatory damages, but after 24 hearing sessions, taking place from October 2012 to July 2013, a panel ordered Citigroup to pay $10,750,000 plus 9 percent interest for a period from May 1, 2009 until the date the award is paid in full. Mulcahy was ordered to pay $250,000 plus interest.
FINRA has not clarified the reasoning behind the award. Fiorilla’s attorney, Kevin P. Conway of Conway & Conway in New York, said that his client had repeatedly asked Citigroup if they were hedging the stock, and they continuously responded they were going to do so. In the end, they found out they did not hedge the stock as asked and the loss was phenomenal. Conway indicated had the stocks been properly hedged, the loss would not have been near as astronomical and the funds would have been protected.
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