Citigroup has agreed to pay nearly $180m to settle charges by the Securities and Exchange Commission (SEC) that the two of the subsidiaries defrauded investors in two hedge funds by claiming they were safe, low-risk, and suitable for traditional bond investors.
Citigroup Global Markets and Citigroup Alternative Investments have agreed to bear all costs of distributing the $180m in settlement funds to afflicted investors.
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The SEC said that both affiliates made false and misleading representations to approximately 4,000 investors in the ASTA/MAT fund and the Falcon fund, raising nearly $3bn in capital before collapsing in 2008.
Citigroup’s financial advisers even encouraged some clients to sell portions of their bond portfolios to invest in the hedge funds, which they described as "bond substitutes," the SEC added.
SEC’s enforcement division director Andrew Ceresney said: "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."
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By GlobalDataCiti’s affiliates consented to the SEC order without admitting or denying the findings.
