A Financial Industry Regulatory Authority arbitration panel has ordered Citigroup Inc. to pay more than $54 million to investors for allegedly telling them that the leveraged municipal bond arbitrage hedge funds they invested in posed little risk with no potential loss of capital.

The funds, which were launched by Citigroup Global Markets Inc. and sold through Smith Barney and Citigroup Private Bank between 2002 and 2007, imploded in February 2008, causing investors to have significant losses, according to Aidikoff, Uhl & Bakhtiari, which is representing the investors along with Maddox Hargett & Caruso PC.

Phil Aidikoff, a partner at Aidikoff, Uhl & Bakhtiari, said the award, ordered Monday by a Finra arbitration panel in Denver, represented 100% of the losses of investor-clients Gerald Hosier, Brush Creek Capital LLC and Jerry Murdock Jr. as well as punitive damages.

The investors filed the claim against Citi in June 2009.

Citi never used the term "hedge fund" until the arbitration case, presumably because hedge funds are supposed to be marketed to sophisticated investors, Aidikoff said. Instead the funds were part of a tender bond option program that issued short-term debt to buy longer-term, higher-yielding munis.

"We are disappointed with the decision which we believe is not supported by the facts or law and we are reviewing our options," said Danielle Romero-Apsilos, managing director and head of public affairs for Citi Institutional Clients Group.

Aidikoff said this is the largest award to date against Citi over the marketing of these funds. He said his firm has represented 16 investor clients in arbitration proceedings, 12 of which received awards representing 100% or more of their losses and four of which received significant awards. The firm represented another 16 clients that settled with Citi. It represents an additional 30 investors in cases that have yet to result in arbitration or settlement, Aidikoff said.

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