Citigroup to Pay $180 Million to Settle Hedge Fund Charges
Citigroup to Pay $180 Million to Settle Hedge Fund Charges
SEC says bank made false representations to investors in two funds that eventually collapsed
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An SEC investigation found the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund, which collectively raised nearly $3 billion in capital from about 4,000 investors before collapsing. PHOTO: BLOOMBERG NEWS
By TESS STYNES
Aug. 17, 2015 11:32 a.m. ET 1 COMMENTS
The U.S. Securities and Exchange Commission said Citigroup Inc. agreed to pay nearly $180 million to investors to settle accusations that it made false and misleading representations concerning the risks of two hedge funds that ultimately collapsed during the financial crisis.
According to the SEC, Citigroup made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund, which collectively raised nearly $3 billion in capital from roughly 4,000 investors before they collapsed. The SEC added that even as the funds were collapsing, Citigroup accepted nearly $110 million in additional investments.
Two Citigroup affiliates, Citigroup Global Markets Inc. and Citigroup Alternative Investments LLC, consented to the SEC order without admitting or denying the findings. A Citigroup spokesman said the bank was pleased to have resolved the matter.
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Falcon invested in municipal bonds, mortgage-backed securities, bank loans and other debt instruments, while ASTA/MAT emphasized municipal bonds. Each was composed of different funds that were launched periodically.
The SEC said the funds, both highly leveraged, were sold exclusively to advisory clients of Citigroup Private Bank or Smith Barney.
Last year Citigroup and U.S. regulators reached a deal that included restrictions to prevent Citigroup from selling investments in hedge funds and private-equity funds to wealthy clients. Those new restrictions stem from a settlement between Citigroup and the SEC related to the bank’s sale of certain collateralized debt obligations to clients in late 2006 and early 2007.
The bank had been offering about 40 hedge funds to clients of its private bank. A hedge fund operated by Och-Ziff Capital Management Group LLC was among those the bank had been selling to clients.
Other banks with similar settlements have been able to escape the restrictions because they came before a change in the law last year.
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