Investment Fraud Lawyer Blog

The Bankruptcy Estate of Terra Securities ASA and seven Norwegian municipalities have filed a securities fraud action against Citigroup Global Markets, Inc. and related entities, as reported in the Wall Street Journal and news wires. The complaint contends that, in 2007, Citigroup fraudulently induced Terra and the municipalities into purchasing notes linked to a "tender option bond" (or TOB) fund managed by Citigroup. TOB funds hold leveraged positions in U. S. municipal bonds. The municipalities lost approximately $90 million and Terra, a Norwegian securities firm, experienced additional losses when it was forced into bankruptcy. The case was filed in the United States District Court for the Southern District of New York.

Continue reading "Norwegian Cities Sue Citigroup to Recover Losses in Tender Option Bond Funds" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Bonds , Brokerage Firms , Citigroup Hedge Funds , Citigroup/Smith Barney , Securities Arbitration , Securities Litigation

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The liability exposure of registered investment advisors for imprudent recommendations of hedge funds and other managed investments is increasing. On April 22, 2009, the U.S. Securities and Exchange Commission (“SEC”) censured Hennessee Group LLC and Charles J. Gradante and ordered them to pay, jointly and severally, over $800,000 for violating Section 206(2) of the Investment Advisors Act of 1940 (the “Act”) and their fiduciary duties owed to clients who relied on their services and recommendations in investing in a group of fraudulent hedge fund known as Bayou Superfund, LLC; Bayou Accredited Fund, LLC; Bayou Affiliates Fund, LLC; and Bayou No Leverage Fund, LLC; all successors to Bayou Fund LLC (“Bayou”).

Hennessee, a “hedge fund consultant” and registered investment advisor subject to the Act, and its chief executive and investment officer, Gradante, operated in New York City. In 2005, Hennessey had approximately 100 clients and $1.35 billion in client assets under management. The SEC found that Hennessee held itself out as “pioneers in Hedge Fund Consulting” with years of experience in helping clients achieve “higher investment returns with lower risk” by recommending “a customized portfolio of hedge funds, properly diversified and managed. Hennessee routinely represented to clients and prospects that it would not recommend investments in hedge funds that did not satisfy all phases of its due diligence.

Continue reading "Registered Investment Advisors Have Liability Exposure for Imprudent Recommendations of Asset Managers" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Bear Stearns Hedge Funds , Citigroup Hedge Funds , Investment Advisers , Ponzi Schemes , Regulatory Developments

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A few minutes ago, Matthew Goldstein at BusinessWeek.com reported that one of Citigroup's top brokers, Richard Zinman, has left for Credit Suisse. Barron's magazine recently ranked Zinman as the nation's 6th-largest broker in terms of assets under management, revenues generated, and customer satisfaction.

According to BusinessWeek, Zinman and his team of junior brokers left Citigroup's wealth managment group in part because so many of his wealthy clients had lost millions in Citi-managed hedge funds, notably Falcon Strategies and ASTA/MAT bond funds.

The manager of those hedge funds, Reaz Islam, departed Citigroup recently as well. He had been with the firm for nearly 18 years.

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Citigroup Hedge Funds , Citigroup/Smith Barney , Employment Issues , Subprime Mortgage & Collateralized Debt Obligation Problems

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Hedge funds marketed by Citigroup as “ideal investments for conservative retirees” have now lost 75% or more of their value. Citigroup’s Smith Barney brokerage unit raised hundreds of millions of dollars for those hedge funds – called Falcon and ASTA/MAT – from retail clients who were told that the fixed income funds were safe places to stash money. Now Citigroup is facing a huge outcry from injured customers and their brokers.

After weeks of intense internal debate, Citigroup is offering to cover some of the losses. This offer is tantamount to an admission that the hedge funds were misrepresented to investors.

Falcon invested in municipal bonds, mortgage-backed securities, bank loans and other debt instruments; ASTA/MAT emphasized municipal bonds. Each consisted of different funds that were launched periodically. Last year, as it geared up to launch new Falcon and ASTA/MAT funds, Citigroup encouraged the brokers at Smith Barney and Citigroup’s private bankers to pitch the funds to their best customers. Of course, they told none of these customers that one reason for the push was that Falcon had declined more than 10% and Citigroup wanted to stabilize it with new cash.

Continue reading "Citigroup Mismarketed Internal Hedge Funds" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Citigroup Hedge Funds , Citigroup/Smith Barney , Subprime Mortgage & Collateralized Debt Obligation Problems

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In an effort to stave off an exodus of wealthy clients, Citigroup recently pumped $661 million into six troubled hedge funds. The bank also devised a restructuring plan that would potentially enable investors to recoup some of their money. By requiring investors to agree that they will not sue as part of the restructuring plan, the bank is trying to “sweep the mess under the mat,” one securities attorney warned.

Sold under the brand names “ASTA” and “MAT,” the six hedge funds used extensive leverage to buy municipal bonds. Approximately $8 for every $1 raised was borrowed by the fund. When the municipal market collapsed in February, the hedge funds tanked. Despite Citi's emergency cash infusion, the funds are down 60 to 80 percent.

Citi’s hedge fund demise follows a plunge by another group of highly leveraged funds that it also managed, $1 billion Falcon Strategies. Late last year, the Falcon funds fell more than 30 percent after making a series of bad bets on the mortgage market. Declines have continued into 2008.

Continue reading "Where Will Citigroup Brokers And Wealthy Clients Go?" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Citigroup Hedge Funds , Citigroup/Smith Barney , Subprime Mortgage & Collateralized Debt Obligation Problems

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