The arbitration panel found Citigroup liable.
"We disagree with the award which was not supported by the facts or law," a Citigroup spokeswoman said.
The situation dates back to 2003, when the Madhanys were customers of Scott Andrew King, a broker who worked for Citigroup between 2002 and 2005, according to the claim they filed.
King referred the Madhanys, who are in their sixties, to prominent politician Lawton "Bud" Chiles III, who was seeking investors for several condominium developments and other real estate projects.
King allegedly steered the Madhanys to Chiles and the real estate investments without the knowledge of Citigroup, according to the claim. King also allegedly bought two condominiums through Chiles at a discount, a conflict of interest that he should have disclosed to the Madhanys, they alleged.
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King, now a broker for Wells Fargo Advisors, a unit of Wells Fargo was not available for comment outside of regular business hours. A Wells Fargo spokeswoman was also not immediately available to comment.
The two real estate projects in which the Madhanys invested ran into financial trouble in 2007 when the U.S. housing market collapsed, causing the couple to lose their investments. In addition, the Madhanys and several other investors signed personal loan guarantees in connection with a $12 million loan to one of the projects by the former Wachovia Bank.
When the loan defaulted in 2009, Wachovia sued the Madhanys and other investors. A court entered a $10 million judgment against the group last year, leaving each person potentially on the hook for the entire amount.
The arbitration panel's decision on Monday includes more than $1 million to cover the couple's lost real estate investments. Citigroup must also pay $2.1 million to cover the couple's share of the $10 million judgment, according to the ruling. Citigroup must also reimburse the couple up to the full $10 million in the event they are required to pay the entire judgment amount, according to the ruling.
"I am thrilled for the Madhanys. They worked very hard for their retirement," said Jeffrey Sonn, the Fort Lauderdale, Fla.-based lawyer who represented the couple. "It was a just result because brokers must be held responsible when they sell investments away from their firm," Sonn said.