A three-person National Association of Securities Dealers panel last week ruled that Citigroup’s Salomon Smith Barney unit, since renamed Citigroup Global Markets, breached its fiduciary duty to the WorldCom worker, the Wall Street Journal reported. The panel ruled that was the case because of Salomon Smith Barney’s close relationship with the company and its top executives. Salomon Smith Barney also administered WorldCom’s stock-option program.
Thousands of WorldCom employees were left with options of little or no value when the telecommunications giant turned to a US Bankruptcy Court for protection in 2002.
According to the panel’s ruling, Salomon Smith Barney “bent over backwards” to bolster its profitable investment-banking relationship with WorldCom, now called MCI. The relationship was “rife” with conflicts of interest. The panel did not find that Salomon Smith Barney had broken the law, but ordered Citigroup to pay Florida resident Linda Naples, a 17-year veteran of WorldCom, $75,000 of her $600,000 claim against the firm.
“Salomon Smith Barney’s continuing pursuit of its own interests, without any regard to the contrary interests of those for which SSB owes its fiduciary duty, leads this panel to find that such conflict directly caused the plaintiff’s damages,” the panel said in its strongly worded eight-page award, according to the Journal. The panel concluded that Ms. Naples “was participating in a rigged game to begin with.”
The arbitrators concluded that investors need to “take responsibility for their own decisions.” But because of the alleged conflicts the panel said Salomon Smith Barney had, the panel ruled that the investment bank “is responsible in large measure” for Naples’s losses.
Individuals such as Naples typically must file claims in arbitration to recoup alleged investment losses, as brokerage contracts typically require it.
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