Arbitration panels for the Financial Industry Regulatory Authority have ordered Citigroup to pay roughly $2.2 million to investors who lost money in one of the bank’s municipal bond arbitrage vehicles.

A FINRA panel awarded $1.7 million to three investors in a ruling last month. Another panel awarded $550,000 to other investors in a ruling yet to be made public, law firms for the claimants said yesterday.

Steven Caruso, a lawyer with the New York-based firm Maddox Hargett & Caruso, said his firm has about 30 similar cases pending before FINRA, seeking a total of about $100 million.

“We are disappointed and disagree with this decision as it is inconsistent with other panels, which have dismissed similar claims,” a spokesman for Citigroup said in response to the latest ruling.

At least two other arbitration panels have either dismissed similar claims against Citi for this fund or awarded significantly less than what was requested.

In late 2008, three investors — Abramson Living Trust, the Spector Family Trust, and Michael Piuze — filed for arbitration against Citigroup. The investors alleged fraud and breach of fiduciary duty arising from a structure called MAT Five, which has been the subject of a number of disputes and lawsuits for Citi.

The structure was created in June 2005 as a vehicle to invest in a type of arbitrage that plays long-term municipal bond yields against short-term rates, essentially betting they will converge.

The strategy typically entailed hedging both long- and short-term positions using opposite positions in taxable rates, specifically the London Interbank Offered Rate, which historically moved closely in concert with municipal rates.

Once the historical correlation between municipal yields and Libor rates broke down in 2008, the hedges failed and the vehicle became insolvent, according to a separate lawsuit against MAT Five. More than 1,000 investors bought stakes worth a total of $800 million in the vehicle.

A statement from the lawyers for the claimants said the fund “imploded” in February 2008, “causing catastrophic losses to investors.” The claimants alleged that, through brokers, Citi misrepresented the risks of investing in municipal arbitrage vehicles.

Citi characterized the investment as being about as volatile as an aggregate bond index, the claimants alleged, when in fact it was far more risky and volatile than the stock market, let alone a bond portfolio.

A FINRA panel ordered Citi to pay the Abramson and Spector trusts $383,000 each, plus 10% interest. The panel awarded Piuze $766,000 plus interest. Citi was also ordered to pay the panel’s fees. Caruso said the figure represented full recovery for his clients. He declined to identify his clients in the second award of $550,000.

Citi has 30 days from the award to pay, or else have its brokerage license stripped.

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