- December 10, 2023
- Citigroup Global Markets
The Wolper Law Firm has filed a FINRA arbitration claim against Citigroup Global Markets, Inc. (Citigroup) arising from the sale of Auto-callable Structured Notes. The Financial Advisor responsible for the recommendations is Jorge Menendez (CRD #5138358).
Jorge Menendez has been registered with Citigroup as a Financial Advisor since 2013. He is located in Miami, Florida. Prior to working at Citigroup, Jorge Menendez worked at BB&T Investment Services, Morgan Keegan & Co., Amtrust Investment Services and Quest Capital Strategies.
What are Auto-callable Structured Notes
Auto-call Notes are market-linked investments that offer a coupon to investors from the date of purchase through the date of maturity (typically 24 months). The payment of the aforementioned income is connected to the performance of underlying securities—typically individual stocks or stock indices. In this case, the Auto-call notes were each tied to the performance of between two or three underlying individual stocks. The prospectus of the Auto-call Notes dictates that if all of the underlying individual stocks remains at or above a certain price (i.e., the “Coupon Barrier”), all is good in the world and the investor will continue to receive the stated income payment. If, however, one of the underlying stocks falls to a price below the Coupon Barrier, the investor will no longer receive the stated income payment. It necessarily follows that having multiple underlying stocks in the basket of the Auto-call Note is riskier than a single underlying stock because it is more likely that at least one stock, among multiple stocks, will decline in value.
Separate and apart from the Coupon Barrier that dictates whether the investor receives income, each Auto-call Note additionally states that the stocks underlying the note are being benchmarked at a specific price, known as the “Initial Level.” If one of the underlying stocks declines to a certain level by the maturity date, known as the “Knock-in Barrier,” not only will the investor not receive income but they will be forced to purchase shares of the depreciated underlying stock at market value. This is problematic because the cost basis associated with those same shares is commensurate with the Initial Level. In other words, the investor will incur massive losses on day-one because they will own shares of stock worth far less than the Initial Level value assigned in the Auto-call Note term sheet. If, on the other hand, the underlying stocks appreciate in value, investors do not get to participate in the upside and the issuer, in this case Citibank, can call the note; hence the name Auto-call Notes.
Auto-call Notes and other forms of Structured Notes are speculative in nature. They are only appropriate for investors who are willing to subject their assets to significant portfolio decline.
The Arbitration Claim
According to the arbitration claim filed by the Wolper Law Firm, the Auto-call Notes recommended by Jorge Menendez were tied to the value of underlying stocks in the technology and financial sector, including Amazon, Block, Inc., Apple, JP Morgan, Bank of America and Morgan Stanley. Disney, Inc., which was outside of these sectors, was also one of the underlying stocks. The technology and financial sectors, which experienced exponential growth post-Covid, declined substantially in 2022. As a result of the decline, each of the Auto-call Notes blew through the protective barriers, leading to a cessation of income payments. Moreover, upon maturity of the Auto-call Notes in 2023, the investors were forced to purchase shares of the “worst performing” underlying stock contained in the basket for each Auto-call Note at depressed prices. This was an outcome that was represented to be nearly impossible. The Auto-call Notes were represented to be safe and secure fixed income alternatives. In reality, Auto-call Notes are high cost and extremely sophisticated securities that are speculative in nature. The arbitration claim, which has been disputed, remains pending.
We Help Investors Recover Investment Losses
If you were recommended by Citigroup or Jorge Menendez to invest in Auto-callable structured notes, and you experienced losses, contact the Wolper Law Firm for a free, confidential consultation. Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, tax status, time horizon, liquidity needs, and risk tolerance; a client’s other investments, financial situation and needs, investment objectives, and any other information disclosed by the customer should also be considered.
The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at email@example.com.