January 4, 2012

Citigroup Sues Rajaraman Over Gold

Case in Singapore court seeks to cover losses in hedge fund

More On Legal & Compliance

from The Advisor's Professional Library
  • Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered.  Otherwise, they are subject to severe penalties.  
  • RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients’ privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.

The Singapore unit of Citigroup is suing hedge fund manager Raghavendran Rajaraman over losses it says he incurred after the price of gold fell from its record in September.

According to a Bloomberg report, Rajaraman held some $19.2 million worth of gold in his account on Sept. 23. On Sept. 26, after it reached a so-called forced-sell level and got his authorization, according to court papers, the bank sold those holdings as well as other collateral, “in the face of a rapidly deteriorating market.”

Gold futures hit a record of $1,923.70 an ounce on Sept. 6, but subsequently lost 11% during the rest of the month. The drop in price when Rajaraman’s assets were sold and his account liquidated left Citi with a $1 million shortfall, according to a Nov. 18 lawsuit filed with the Singapore High Court. The first closed hearing is scheduled for Jan. 27.

Rajaraman, who has not yet filed a defense, was said in the lawsuit to work with hedge fund 3 Degrees Asset Management and was a currency options trader with Citigroup in Singapore until 2007. However, Moe Ibrahim, founder of the hedge fund, said that Rajaraman is not a 3 Degrees employee. In the report Ibrahim was quoted saying, “There was a plan to launch a fund together but it never came to fruition.”

While Citigroup’s Singapore-based spokesman Adam Abdur Rahman said in the report, “We intend to pursue the case and it’s inappropriate for us to comment further,” a letter from Rajaraman’s law firm Oldham, Li & Nie to the bank’s lawyers on Oct. 7 said that Citi had breached its agreement with Rajaraman by closing his account without prior notice.

“As a direct consequence of the bank’s breach,” the letter alleged, Rajaraman incurred a loss of $1.7 million, representing his collateral. He further incurred a loss of $1.03 million because the bank liquidated the account prematurely, said the lawyers in the letter, instead of waiting for 24 hours after the account reached the force-sell level.

Reprints Discuss this story
This is where the comments go.