USA Today recently published an article reporting that Citigroup has been forced to pay at least $85 million to investors in its disastrous MAT/ASTA municipal arbitrage hedge funds. ("Investor hedge fund claims costs Citigroup $85M and counting," by Kevin McCoy, USA Today). That amount does not include payments made by Citigroup to at least 39 other MAT/ASTA investors pursuant to confidential settlements, and Citigroup may well be forced to pay another $50 million or more as dozens more arbitrations go to hearings in 2012 and 2013, according to the article.
According to Robert Pearce of the Law Offices of Robert Wayne Pearce, P.A., "The USA Today article only reports the tip of the iceberg." This is because the article is apparently based on MAT and ASTA settlements and awards that have been reported. "Our law firm has filed MAT and/or ASTA claims for over 100 investors and many of those cases have gone unreported," according to Mr. Pearce.
The article notes that the Securities and Exchange Commission (SEC) has been investigating Citigroup's management and marketing of MAT/ASTA funds for almost 4 years. Former investors told USA Today that Citigroup financial advisors told them the funds would generate returns of 6% to 8%. "I certainly wasn't going to risk losing capital for a 6% to 8% return," said one investor who lost $700,000.
Despite the big awards, USA Today reports that many question why government regulators have not taken any regulatory action against Citigroup in connection with MAT/ASTA. "We've handed these cases to them on a silver platter," said Robert Pearce, whose Boca Raton, Florida law firm has handled several of the winning arbitrations. "I'm somewhat surprised," he added.
Citigroup did not target high rollers but sold the funds to ordinary municipal bond investors. One Citigroup internal email read: "Our goal is NOT to target hedge fund clients who are willing to accept an unrestricted risk profile, but larger traditional fixed-income investors who are seeking alternatives and customized solutions without materially altering their risk characteristics."
During the arbitrations, emails like the one above and other documents came to light that showed how Citigroup misled MAT/ASTA investors. For example, USA Today reports that Citigroup internal emails revealed that Citigroup gave MAT/ASTA funds the highest risk rating, but that their financial advisers said they had not been told that, and were thus unable to disclose it to their clients.
According to the article, Citi Private Bank director Arestoula Drakatos wrote in a March 11, 2008 email: "I am stunned at the complete arrogance and misinformation that we have been receiving. The most important point is that it is imperative that we do whatever it takes to make our clients whole."
Weeks later, according to USA Today, Sallie Krawcheck, who ran Citigroup's global wealth management division, warned the firm's board of directors "of a potential $1.5 billion financial hit for the company if it didn't move to keep angry investment clients from closing their accounts and financial advisers from departing." (Ms. Krawcheck left Citigroup in mid-2008 after a split with CEO Vikram Pandit, according to the article).
After considering the evidence, including damaging internal emails, "arbitrators have repeatedly sided with the angry investors," said USA Today.
The largest single award against Citigroup in a MAT/ASTA case so far is $54.1 million, which amount includes a large punitive damages award.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at firstname.lastname@example.org for answers to any of your questions about this blog post and/or any related matter.