Citigroup Hedge Fund Case

Citigroup Hedge Fund Case

Citigroup Loses Hedge Fund Case, Pays $550K to Investors

In an important financial case, a group of investors suing Citigroup won more than half a million dollars arguing that the financial firm misled them about its product.  The Financial Industry Regulatory Authority decided that Citigroup understated the risk of a hedge fund product, the MAT 3 Municipal Arbitrage Fund, but the bank countered that it only sold the hedge funds only to clients with large, diversified portfolios. 
 According to a law firm representing plaintiffs, the agency believed the bank misled investors and its own brokers by understating the risk of the product.

Citigroup has defended its handling of the hedge funds, saying they were offered only to clients with large, diversified portfolios.

Spokesman Alex Samuelson said Tuesday, "We are disappointed and disagree with this decision as it is inconsistent with other panels, which have dismissed similar claims."

The company created the product, MAT 3 Municipal Arbitrage Fund, for high-net-worth clients in 2006. Presented as a fixed-income alternative with the volatility of the Lehman Brothers Aggregate Bond Index, the product actually was "a risky investment that not only exposed investors to a 100% or more loss of principal, but was 2.5 times more volatile than the S&P 500 and 7.8 times more volatile than a traditional portfolio of municipal bonds," the lawyers said.

Finra's award represents a 100% return of the investors' losses.  Source

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