Billions

Citigroup sued by brokers it fired over tobacco-settlement fund

Citigroup Inc. was sued by two former brokers who invested billions of dollars in tobacco-settlement money and who claim they were fired to protect the bank when it charged the fund excessive fees.

The brokers, Peter Dunn and Alan Kirman, claim that Citigroup, the biggest U.S. bank by assets, wrongly blamed them for overcharging the tobacco-settlement trust, which holds money paid by the major U.S. tobacco companies as part of a $206 billion settlement with 46 states in 1998.

Dunn and Kirman, in a suit filed July 17 in state court in Florida, claim they were unaware of any fee limits on the settlement money. They claim senior executives, who also were unaware of the limits, blamed them to avoid losing the account when the excessive fees were discovered.

“Citigroup terminated the employment of plaintiffs to maintain one of its largest accounts and minimize lost profits, even though Citigroup acknowledged that the plaintiffs were guilty of no wrongdoing,” the brokers said in the complaint.

The brokers are seeking unspecified damages, including punitive damages and attorney's fees. The case was transferred to federal court in West Palm Beach, Florida, on Aug. 21. Citigroup's Global Markets Inc. unit is the investment manager for the tobacco trust, said Citigroup spokesman Alex Samuelson, who declined to comment on the suit.

$206 Billion Settlement

In court papers, Citigroup said it may try to force Dunn and Kirman to take their claim to arbitration. Brokers frequently sign contracts that require them to submit employment disputes to arbitration, an out-of-court process in which claims are decided privately by an impartial person.

The brokers claim they were assigned to invest the tobacco trust funds beginning in 2006. Payments into the fund, which are based on tobacco industry sales volume, were $4.5 billion in 2006 and $6.4 billion in 2007, they said in the complaint.

The amount of the entire settlement is the total payout over 25 years, as estimated at the time it was signed.

Dunn and Kirman said they weren't told of an agreement limiting fees on the trust investments to 1.5 basis points. They claim the fees and all their trades were reviewed by Citigroup lawyers and executives.

(Published by Bloomberg - august 26, 2008)