Citigroup has been guilty of fraudulent conduct involving risky hedge funds which were marketed as the safety equivalent of municipal bonds. At last count, Citigroup had paid out around $85 million with more payouts very likely in the near future. The payments were awarded either in arbitrations or settlements since 2008. There have also been a large number of confidential settlements, which if made public, would push the total payouts thus far much higher. There are dozens of additional cases set for FINRA arbitrations through 2013. The SEC has been investigating Citigroup’s management and marketing of these investments for almost four years.
The investors were never told that the funds were highly leveraged – borrowing roughly $8 for every $1 invested – and that created huge losses when the bond market plunged in 2008. A separate group of Citigroup hedge funds sold to top investment clients, called Falcon Strategies, also fell sharply on losing mortgage investments in 2007. Internal documents – including emails – were very damaging to Citigroup. The bottom line is that the bank misled its customers about funds it knew were risky and didn’t meet the customers’ needs or expectations.
Source: USA Today
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