Two Citigroup affiliates agreed Monday to pay $180 million to the Securities and Exchange Commission to settle charges they defrauded investors in two hedge funds that collapsed during the financial crisis in 2008.
Without admitting or denying the findings, Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI) agreed to “bear all costs” of distributing the $180 million in settlement funds to 4,000 harmed investors.
The SEC alleged that both Citigroup units claimed the hedge funds were safe, low-risk and suitable for “traditional bond investors,” but failed to disclose the “very real risks” in the funds, which eventually crumbled and then collapsed during the financial crisis.
An SEC investigation found that the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT fund, a municipal arbitrage fund, and the Falcon fund, a multi-strategy fund that invested in ASTA/MAT and other fixed income strategies — which collectively raised nearly $3 billion in capital from approximately 4,000 investors before collapsing.
The funds, both highly leveraged, were sold exclusively to advisory clients of Citigroup Private Bank or Smith Barney by financial advisors associated with CGMI. Both funds were managed by CAI.