Sec Investigates Citigroup’s Mat/Asta and Falcon Funds

Three California brokers who worked for Smith Barney until 2008 have alleged that Citigroup failed to disclose the fund’s risk and also mismanaged them. Smith Barney was previously a part of Citigroup. The Securities Exchange Commission (SEC) is investigating one series of funds, called MAT Finance LLC, short for municipal arbitrage trust, and also another fund, called Falcon. MAT borrowed at low short term rates and invested in longer term bonds that paid higher rates. It was marketed as “an attractive alternative” to a bond index. The Falcon fund contained municipal bonds, mortgage backed securities (MBS) and bank loans. S&P gave the Falcon funds a rating of “low to moderate sensitivity to changing market conditions.”

Such funds were marketed and sold to wealthy customers under the names ASTA, MAT and Falcon. These funds raised $2.8 billion from investors between 2002 and 2007. Investors had to have at least $5 million in investible assets, meeting a definition of sophistication and exempting Citigroup from registration requirements. According to the brokers, Citigroup misled its own brokers about the fund’s risk and the brokers then misled investors. They also claimed that Citigroup ignored its own benchmarks for when to buy and sell in order to reduce losses, in addition to hedging tactics.

Investigators spoke to another former Smith Barney broker in Texas. The broker’s attorney said, “The SEC raised questions regarding whether Citi had disclosed to its financial advisers that Citi’s own private bank had rated the Falcon Fund at a risk level of 4 on a scale of 1 to 5, with 5 being the highest risk.”

The most recent Financial Industry Regulatory Authority (FINRA) award from Boca Raton, FL was for $1,817,296 in compensatory damages against Citigroup for negligent management and negligent supervision. (FINRA # 09-02697; Gerald J. Kazma, et al. v. Citigroup Global Markets, Inc, et al.)

If you have suffered losses in ASTA, MAT or Falcon funds, please contact our securities law firm for a no obligation, confidential consultation at 1-800-259-9010.

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