SEC Fines Citigroup $180 Million Over ASTA/MAT Fund Losses

The Securities and Exchange Commission (SEC) issued a press release announcing that two Citigroup affiliates (Citigroup Alternative Investments LLC and Citigroup Global Markets Inc. (Citigroup)) agreed to pay nearly $180 million to settle charges that they the firms defrauded investors in two hedge funds. According to the SEC Citigroup claimed that the hedge funds were safe, low-risk, and suitable investments for those looking for traditional bond like investments. However, the funds later completely collapsed. Citigroup raised nearly $3 billion in capital from approximately 4,000 investors before the hedge funds collapsed.

The SEC’s investigation determined that Citigroup made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund. The SEC gound that Citigroup failed to disclose the true risks of the funds and even when the funds began to collapse Citigroup raised nearly $110 million in additional investments without disclosing the true failing condition of the funds. Instead, the SEC alleged that Citigroup continued to assure investors that the ASTA/MAT funds were low-risk, well-capitalized investments with adequate liquidity. The SEC found that the firm’s representatives made misleading representations to investors that were at odds with disclosures made in marketing documents and written materials provided to investors.

In their press release the SEC stated that “Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures.”

The ASTA/MAT fund was a complex investment strategy fund that relied upon a municipal arbitrage strategy that purchased municipal bonds and used a Treasury or LIBOR swap to hedge interest rate risks. The Falcon fund was a multi-strategy fund that invested in ASTA/MAT and some other fixed income strategies that included CDOs, CLOs, and asset-backed securities. Both funds were highly leveraged and sold exclusively to advisory clients of Citigroup Private Bank or Smith Barney by financial advisers associated with Citigroup. The funds were managed by Citigroup Alternative Investments. The SEC found that neither Falcon nor ASTA/MAT were low-risk investment that were similar to other bond alternatives as investors were told by Citigroup agents. The SEC found that Citigroup failed to control their employees from making misleading statements that minimized the significant risk of loss resulting from the funds’ investment strategy and use of leverage. Finally, the SEC found that Citigroup failed to adopt and implement policies and procedures that prevented the financial advisers and fund manager from making false representations.

Investors who have suffered losses may be able recover their losses through securities arbitration. The investment attorneys at Gana LLP are experienced in representing investors in cases where their broker has acted inappropriately. Our consultations are free of charge and the firm is only compensated if you recover.

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