Client Sues ShitiGroup / 06

Citigroup sued over auction rate securities
Thu Mar 27, 2008 6:02pm EDT
By Emily Chasan

NEW YORK (Reuters) - Citigroup Inc (C.N) was sued on Thursday by a client accusing the financial institution of failing to properly disclose the risks of investing in auction rate securities.

The lawsuit, filed in U.S. District Court in Manhattan, seeks class action status. It also accused the company of artificially supporting the auctions.

Auction rate securities are bonds that banks typically pitched as a safe alternative to cash. They are long-term securities, but the investment banks hold periodic auctions to set the interest rates, giving holders the option to sell their securities.

But in recent months as the credit market tightened and auctions failed to attract bidders, investors have found themselves holding securities they thought would act like cash.

Citi did not immediately return a call for comment.

The lawsuit, filed by plaintiff Lisa Swanson who purchased auction rate securities in 2006, is seeking compensatory damages for herself and those similarly situated.

Citi is the latest major broker to face litigation over its marketing of auction rate securities. Similar lawsuits have also been filed against Morgan Stanley (MS.N), Merrill Lynch MER.N, UBS AG (UBSN.VX), TD Ameritrade (AMTD.O), and Wachovia Corp WB.N.

(Editing by Toni Reinhold)



http://www.reuters.com/article/bankingFinancial/idUSN2739612220080327