After the Securities and Exchange Commission (SEC) announced the $180 million enforcement action against two Citigroup units accused of misleading investors ahead of the financial crisis, many observers feel Citi came out the best in the settlement.
Citi agreed to the fine in order to end the SEC probe into how the bank’s financial advisers allegedly made misleading statements and omitted key information when soliciting their high-net worth clients to buy shares in the subject hedge funds. According to the SEC, nearly 4,000 investors put nearly $3 billion dollars in funds that were represented as safe alternatives to bonds. However, in reality, the funds were highly leveraged and extremely complex instruments that crumbled during the late 2007 and 2008 financial crisis. According to the securities regulator, the hedge funds, known as ASTA/MAT and Falcon Strategies, imploded in 2008, causing billions of dollars of investor losses.
To settle the claim, Citigroup agreed to pay just under $140 million in disgorgement, plus another $39.6 million in prejudgment interest. The giant bank will also have to distribute the funds to aggrieved investors and bear the costs associated with the restitution. But beyond that, the SEC did not extract a civil fine or any admission of wrongdoing by the bank, nor did the enforcement action name any of the Citi employees involved in the alleged misconduct, including one of the fund managers whom the SEC indicated was deeply involved in the misrepresentation of the investment funds.
The experienced securities litigation attorneys at Colling Gilbert Wright & Carter have litigated and resolved hundreds of FINRA arbitration claims over questionable Wall Street practices. If you believe you lost money due to misrepresentations or fraud on the part of your FINRA registered broker dealer, please contact us for a free case evaluation.