Another day, another fine for the Citigroup family. This time $180 million.
The SEC charged two hedge fund affiliates with misleading investors, urging them to invest in vehicles that were about to self-destruct. Yes, that was during the run-up to the financial crisis. Citigroup invoked the “fine print” rule, saying investors should have realized these weren’t little-old-lady investments. But the regulators basically said “piffle.” Insiders knew the dire straits of the funds and should have issued stern warnings to potential investors.
Citigroup Global Markets (CMG) and Citigroup Alternative Investments (CAI) were accused in the polite parlance fo the SEC of making false representations relating to two debt hedge funds.
The two funds involved, ASTA/MAT and Falcon, raised $3 billion from over 4,000 investors between 2002 and 2008 before falling apart.
The Securities and Exchange Commission (SEC) says the funds were marketed to investors as low-risk vehicles that put the money in municipal bonds, mortgage-backed securities, bank loans, and debt instruments. In reality, the SEC says, the highly leveraged funds were far riskier.
The regulator also censured Citigroup for allegedly collecting $110 million from investors even as the funds started to collapse in 2007. Andrew Ceresney, director of the SEC’s Enforcement Division had this to say:
“Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures. Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster.”
CMG and CAI have consented to the SEC’s order but did not admit to, or deny, the allegations.
Photo: Scott S