Investors who purchased MAT/ASTA municipal arbitrage funds between 2002 through 2005 may mistakenly believe that they have waited too long and it is too late to pursue a claim for damages against Citigroup. Fortunately, this is not the case.
Citigroup was “negative” on subprime mortgages at least as early as 2006. Despite that, Citigroup continued to originate subprime mortgages and underwrite subprime mortgage-backed securities in large quantities. In 2007, Citigroup originated $19.7 billion in subprime mortgages and underwrote $13.4 billion in subprime mortgage-backed securities. Senior management says it did not have a clue what was going on. See April 8, 2010 article in the Huffington Post by Shahien Nasiripour, “Citi ‘Negative On Subprime mortgages As Early As 2006, Yet Firm Continued to Pump Out Subprime Mortgage Products.”
Continue reading "Citi Knew of Subprime Problems and Risks in 2006" »
The law firms of Page Perry, LLC and Robert Wayne Pearce, P.A. are proud to announce their agreement to join together in investigating and pursuing MAT/ASTA municipal arbitrage cases against Citigroup and its affiliates. Both firms have extensive experience in prosecuting MAT/ASTA cases and already have been involved in representing almost fifty (50) MAT/ASTA clients between them.
Scams will always be with us but they are especially plentiful when traditional investments like stocks and bonds are not doing well, according to John Waggoner of USAToday in his August 5, 2010 article, “Investment Scams Thriving.”
"It's pretty bad out there," Texas Securities Commissioner Denise Voigt Crawford was quoted as saying. The primary victims are those trying to make up losses in their 401(k) plans and stock portfolios, she added.
Continue reading "Regulators Report that Investment Scams are on the Rise" »
In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a South Florida panel specifically found that Respondents Citigroup Global Markets, Inc. f/k/a Citigroup Investment Services, and Citigroup Alternative Investments, LLC were guilty of negligent mismanagement of MAT/ASTA funds, as well as negligent supervision of their registered representatives. This award should open the door for many investors to recover the damages they sustained, particularly in early MAT/ASTA deals.
Investors in the MAT Municipal Arbitrage Funds sold by Citigroup/Smith Barney recently won a total of $2.1 million in separate arbitration proceedings and these awards may just be the tip of the iceberg. In fact, Wall Street brokerage firms are being ordered to pay millions to investors who incurred significant losses on what they thought were low-risk investments, but were, in fact, leveraged municipal arbitrage hedge funds, according to a Wall Street Journal article by Randall Smith (“Crisis-Era Munis Haunt Wall Street,” July 27, 2010).
Continue reading "Investors Are Winning MAT/ASTA Claims Against Citigroup/Smith Barney" »
In recent weeks, two Financial Industry Regulatory Authority (FINRA) arbitration panels have awarded more than $2.2 million to clients of Page Perry, LLC, Maddox, Hargett and Caruso, P.C., and David R. Meyer & Associates in connection with their purchases of MAT municipal arbitrage fund investments. MAT Five and MAT Three were leveraged municipal arbitrage hedge funds offered by Citigroup Fixed Income Alternatives and sold through Smith Barney. Both MAT Five and MAT Three were marketed only to high net worth clients of the firm as fixed income alternatives. In truth the MAT funds were risky investments that exposed investors to a 100 percent or more loss of principal. The funds imploded in early 2008 causing catastrophic losses to investors.
The Atlanta Journal-Constitution reported today that an Atlanta hedge fund manager is being sued for fraud by investors who contend that he diverted money for personal use and falsified financial statements to hide the theft. This is just one example of the problems that can arise when investors – particularly those who are unsophisticated – invest in hedge funds. Though similar to mutual funds in that they pool investors’ money to invest in a variety of financial instruments, they are generally not required to register with the Securities and Exchange Commission (SEC). Hedge funds typically issue securities in “private offerings” that are exempt from SEC registration requirements because they can only be offered to a limited number of accredited investors.
Continue reading "Have You Lost Money in a Hedge Fund?" »
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" »
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.
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.
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" »
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?" »
