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Hoping to draw on public anger over the many recent Wall Street scandals, a Delray Beach, Fla., retiree whose nest egg of WorldCom stock dwindled from $2 million to nothing is suing Citigroup Inc. and its Salomon Smith Barney investment arm for emotional distress. Securities law experts say the suit may be the first in the nation to seek damages from an investment adviser on the grounds of emotional distress. It’s based partly on Florida’s common law “tort of outrage.” Findings based on this tort often carry punitive damages. On Aug. 21, Anthony Amodio, 71, a national accounts manager at Ashburn, Va.-based MCI Communications Corp. until he retired in 1997, sued New York-based Citigroup Inc., Citicorp Investment Services Inc., and Citigroup Global Markets Inc. (formerly Salomon Smith Barney, Inc.) in Palm Beach Circuit Court. Amodio alleges intentional infliction of emotional distress, fraud and breach of contract. In addition, he claims Citigroup violated Florida’s “Blue Sky” statute 517.301, which prohibits falsification or concealment of facts by investment advisers. Amodio’s attorney, Ted Babbitt, a partner at Babbitt Johnson Osborne & LeClainche in West Palm Beach, has filed notices to take video depositions of Citigroup telecom industry analyst Jack Grubman, former WorldCom chief executive Bernard Ebbers, and former Citigroup chief executive Sanford Weill in early November. The three are central figures in the 2000-2001 telecom stock crash and ensuing scandals. The heart of Amodio’s case is that the investment advice given to him by Citigroup and Salomon Smith Barney, was corrupted by their close — and undisclosed — financial relationship with WorldCom and its executives. His lawsuit claims that Citigroup failed to inform him of Grubman’s “direct relationship” with WorldCom and “close personal friendship” with Ebbers. The lawsuit also cites Citigroup’s failure to disclose Grubman’s and Citigroup’s enormous gains from its dealings with WorldCom. The suit alleges that Amodio would have sold his stock and avoided the $2 million loss were it not for Grubman’s research reports, allegedly falsified “for the purpose of serving Salomon’s investment banking arm.” A Citigroup representative said the suit was “without merit” and would be “defended vigorously.” According to Amodio’s complaint, his matching funds retirement account — built up over 26 years of employment at MCI — consisted almost entirely of shares of MCI stock; he was required to trade the holdings for shares of WorldCom after that Clinton, Miss.-based company acquired MCI in 1998. Citigroup was simply a repository for Amodio’s account. But in July 1999, when Amodio grew nervous at having all his eggs in one basket and called Citigroup for advice, the bank referred him to its investment advisers at Salomon Smith Barney. The Salomon advisers told Amodio to hold on to his Worldcom stock, which then totaled 23,820 shares valued at $87.75 per share for a total value of $2,090,205. Allegedly, Salomon told Amodio that Jack Grubman, Salomon’s chief telecommunications analyst, “whose job it was to independently analyze the strength of WorldCom stock,” expected it to “easily break triple digits before the end of the year.” Amodio alleges that as WorldCom’s share price plummeted over the next three years, he repeatedly called Salomon Smith Barney and expressed his doubts, but was “consistently told” that the “independent analysis” of Grubman and other Salomon analysts was to hold on to the stock. In April 2002, with WorldCom stock down to $7 per share, Amodio claims Salomon advisers told him that Grubman and the other Salomon analysts expected the stock to rebound to $150 per share, in part because “the Saudis were in the market big.” Citigroup research reports, cited in Amodio’s claim, show that Grubman’s “buy” recommendation on WorldCom held steady until the very end. On June 24, 2002, with the stock at less than $1 per share, Grubman finally lowered his rating to “under perform.” One month later WorldCom went bankrupt. SIDESTEPPING ARBITRATION RULE Typically, shareholders are barred from suing their brokers because investment houses require their clients to sign agreements for mandatory, binding arbitration of disputes through panels chosen by the National Association of Securities Dealers (NASD). But Amodio had no written agreement with Salomon. For purposes of the suit, Amodio contends that Salomon’s offer of investment advice in its role as broker for Citigroup constituted an oral contract between him and Salomon. Babbitt said he hopes that taking Amodio’s case to a jury, rather than handling it through a securities arbitration proceeding, will allow a fuller examination of the Wall Street conflicts that have hurt so many stock market investors. In NASD arbitrations, discovery is almost non-existent. Amodio’s lawsuit draws on information developed in New York Attorney General Eliot Spitzer’s 2002 investigations of the Wall Street investment houses. The suit notes that Grubman consulted with Ebbers on acquisitions and participated in WorldCom directors’ meetings. And Salomon allocated “millions of dollars” in initial public offering stocks to Ebbers personally. It also notes Spitzer’s findings that Salomon’s fees from telecom banking deals totaled more than $1 billion from 1998 to 2002, including “more than $100 million” from WorldCom, and that Grubman personally benefited, including a $25 million compensation package in 1998. The defendants knew that Grubman’s reports were “false and misleading and generated because of the monies earned by the defendants as a consequence of their relationship with WorldCom,” the suit alleges. ‘LIKE PORNOGRAPHY’ Babbitt’s tort of outrage claim for intentional infliction of emotional distress rests on Florida common law. He said the test for such a tort is that the conduct was intentional or committed with reckless disregard, the defendant knew or should have known that the action was likely to cause emotional distress, and the action must be beyond the bounds of decency. “It’s sort of like pornography,” Babbitt said of the bounds-of-decency test. “I know it when I see it.” Babbitt said he plans to prove his client’s emotional distress by medical reports reflecting a deterioration in Amodio’s mental and physical health after the WorldCom debacle. He also plans to call on the testimony of Amodio’s family and friends. Securities defense attorneys not involved in the case expressed skepticism about Amodio’s tort of outrage and emotional distress claims. “What constitutes outrageous conduct is the issue,” said Jonathan Robbins, a shareholder and member of the securities litigation practice group at Akerman Senterfitt in Fort Lauderdale. “A judge will make that determination. But intent may be difficult to establish and reckless disregard is a pretty high standard.” Another prominent securities defense attorney, who asked not to be named, laughed when told of the emotional distress claim. “We’ll see who laughs last,” Babbitt countered. “It only takes a finding by one judge to make this cause of action available to millions of shareholders.” Babbitt sees the outrage claim as an especially strong hammer because that count allows pain and suffering awards and the possibility of punitive damages. He predicts that jurors may use it as an opportunity to express their repugnance with the continuing Wall Street scandals. “I think any jury will be outraged and it will be reflected in the verdict,” he said.

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