Investment Fraud Lawyer Blog

The amount of dollars at stake in FINRA securities arbitrations has grown in recent years. Of the 7,000 claims currently pending, approximately 200 involve claims of $10 million or more. “The claims coming in now are substantially larger than what we had a few years ago,” Linda Fienberg, president of FINRA Dispute Resolution, was quoted as saying. (“FINRA flooded with multimillion-dollar cases,” Nate Raymond, The American Lawyer).

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Ordinarily, the evidence presented in a FINRA arbitration is kept “confidential” and secret from the public. That’s the way the securities industry likes it, because it really does not want the public to see the evidence against it. But in its zeal to try to overturn the largest amount ever awarded to individual investors in a FINRA arbitration, Citigroup inadvertently allowed New York Times columnist Gretchen Morgenson to have a look at the evidence that was presented to the arbitrators in that case. What she found is the subject of her recent article entitled “Secrets of a Sales Machine.”

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After federal district court judge Jed Rakoff “forcefully rejected” a $285 million settlement between the SEC and Citigroup, Susan Beck bravely decided to read the prospectus for the Class V Funding III CDO at the center of the controversy, in order to see the disclosures that Citigroup says are adequate. What she found was a “brain-scrambling, obfuscating collection of words.” (“Susan Beck’s Summary Judgment: The Problem with Citi’s Disclosure Argument,” AmericanLawyer.com).

The SEC had accused Citigroup of failing to disclose to investors in the CDO that it had a role in selecting one-half of the $1 billion of assets in the deal and then bet against some of them. The investors lost $700 million while Citigroup made $160 million on the deal. Citigroup argued that its disclosures to investors were adequate, given that the investors were “sophisticated.”

Continue reading "How Citigroup Met its Disclosure Obligations: a ‘Brain-Scrambling, Obfuscating Collection of Words’" »

Hedge funds are winning the fight against transparency. While hedge funds with more than $1.5 billion in assets will be required to report certain information to the Securities and Exchange Commission under new rules, after intense lobbying, no hedge funds will be required to report “position information,” or details on individual investment holdings; they will not bear the penalty of perjury for misleading reports; the reports will not be public (only regulators will have access to them). All of this assumes the rule, which was approved by the SEC, is also approved by the Commodities Futures Trading Commission, as expected.

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Unfortunately, many investors are experiencing first hand the truism that hedge fund managers rarely outperform the market on consistent basis.

John Paulson, the hedge fund manager who made a killing when Goldman Sachs let him select bad CDO assets, which he turned around and bet against, is having a tough time in 2011. His hedge fund has declined nearly 50% this year as a result of a massive positions in Bank of America, which had lost half of its value by October, Rupert Murdoch’s scandal-plagued News Corp., which owns Fox News, and Sino-Forest Corp., which imploded after an accounting scandal.

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Bloomberg reports that Citigroup invested approximately $800 million of shareholder’s equity in its own private equity and hedge funds during the third quarter, despite knowing that regulators are busy drafting the Volcker rule, which would curtail the practice. Citigroup reportedly classified the $800 million as Level 3 assets, which are illiquid assets that are valued by in-house models.

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A Financial Industry Regulatory Authority (FINRA) arbitration panel in Denver has ordered Citigroup Global Markets, Inc. to pay over $54 million in damages for its abusive conduct in marketing and managing various investments including municipal bond hedge funds known as MAT/ASTA. The arbitration panel issued their award on April 8, 2011.

Continue reading "Arbitration Panel Renders $54 Million Award Against Citigroup in Case Involving MAT/ASTA Municipal Arbitrage Investments" »

If you are an investor who lost money in the financial crisis, your stockbroker or investment advisor may owe you money. There are a variety of legal claims that can be brought for investment malpractice, ranging from fraud and misrepresentation to making unsuitable investment recommendations. But there are also legal deadlines for bringing such claims, and time may be running out if you have not yet discussed your options with a lawyer who handles investor rights claims.

Continue reading "Victims of Investment Malpractice or Other Financial Misconduct During the Recent Financial Crisis May Be on the Verge of Losing Legal Rights" »

Citigroup's problems with its proprietary MAT/ASTA municipal arbitrage funds just keep growing. A recent Wall Street Journal article by Suzanne Barlyn entitled “Citi Units Must Pay $6.4 Million Over Muni-Arbitrage Loss,” which concerns Citi’s disastrous MAT/ASTA municipal arbitrage funds, reports a significant $6.4 million award issued against Citigroup in a MAT/ASTA case by a Financial Industry Regulatory Authority (FINRA) arbitration panel. Despite their high risks, the funds were marketed as an alternative to municipal bond portfolios. The funds also falsely emphasized their strong risk management and controls.

Continue reading "Citigroup Hit with a $6.4 Million Judgement Involving its MAT/ASTA Municipal Arbitrage Funds." »

The Wall Street Journal reports that several former Citigroup/Smith Barney brokers have been sharing information with the SEC about alleged fraudulent practices associated with the MAT/ASTA municipal bond arbitrage funds that lost more than 75% of their value between 2007 and 2008. (“Citi Debt Funds Probed by SEC,” 11/8/10). These brokers may stand to be compensated handsomely if the SEC imposes big financial penalties against Citigroup for misrepresenting the risks of MAT/ASTA funds. That is because of an obscure provision in the recently enacted Dodd-Frank Financial Reform Act creating a financial rewards program that can pay a large sum of money to any person who provides “original information” to the SEC that leads to a successful enforcement action relating to the violation of federal securities laws. The Act provides for payments to “whistleblowers” ranging between 10% and 30% of the amount recovered by the SEC.

Continue reading "Brokers May Reap Big Rewards for Reporting Alleged Fraudulent Conduct by Citigroup in the MAT/ASTA Municipal Arbitrage Funds" »

A recent front-page Wall Street Journal article by Randall Smith entitled “Citi Debt Funds Probed by SEC,” which concerns Citi’s disastrous MAT/ASTA municipal arbitrage fund, features a highly significant $1.8 million award issued against Citigroup in a MAT/ASTA case by a Financial Industry Regulatory Authority (FINRA) arbitration panel.

Continue reading "Front Page Article in the Wall Street Journal Highlights Recent MAT/ASTA Arbitration Award" »

In his September 9, 2010 article in The Bond Buyer entitled “Judgment Aids Investors in Citi Case,” author Dan Seymour describes a recent Financial Industry Regulatory Authority (FINRA) arbitration award of more than $1.8 million in favor of MAT/ASTA investors as “[a] grand-slam judgment [that] has emboldened the lawyers and investors seeking to recoup losses on $2 billion in municipal arbitrage funds run by Citigroup.”

Continue reading "Citigroup's Mismanagement of MAT/ASTA Funds Produces "Grand Slam" Award for Investors" »

Citigroup misled its representatives who sold the firm’s MAT/ASTA municipal arbitrage hedge funds, and arbitrators are placing the blame squarely on the firm, according to a September 5 article by Bruce Kelly in InvestmentNews (“Arbitrators: B-Ds Kept Brokers in the Dark on Private Deals”).

Continue reading "The MAT/ASTA Municipal Arbitrage Funds - Citi's Latest Product Problems" »

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.

Continue reading "It's Not Too Late for Investors to Obtain Recovery of MAT/ASTA Municipal Arbitrage Losses" »

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.”

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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.

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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.

Continue reading "Citigroup Affiliates Found Liable for Mismanaging the MAT/ASTA Municipal Arbitrage Funds" »

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).

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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.

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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?" »