Citigroup’s legal bills for arbitration claims from investors involving a failed group of fixed-income alternative funds known as ASTA/MAT keep growing. So far, the tally to reimburse investors who lost money in ASTA/MAT is some $85 million. And it could get even higher because more cases are scheduled for arbitration this year and next.
The ASTA/MAT funds lost some 90% of their value beginning in 2008. The funds, which investors say had been marketed as less risky and more profitable than other fixed-income and municipal investments, were highly leveraged and borrowed approximately $10 for every $1 raised. As the ASTA/MAT funds began to lose money, Citigroup managers continued to sell the products and employ highly speculative investment strategies.
Investors who have since filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) allege that Citigroup and its managers intentionally misled them about ASTA/MAT and were well aware of the risks involved with the funds.
Internal Citigroup records and e-mails about ASTA/MAT appear to back up investors’ claims. As reported March 21 by USA Today, one such e-mail shows Citigroup had put an internal credit risk rating on ASTA/MAT at the highest and most volatile level possible.
“The biggest surprise is the damaging internal e-mails and the extent to which (Citigroup) people committed to writing that these were defective (investment) products,” said Steven Caruso, a partner with Maddox, Hargett & Caruso, in the USA Today article.
Caruso’s firm, along with the law firm of Aidikoff, Uhl & Bakhtiari, secured a $54 million judgment on April 11, 2011, for investors who suffered financial losses in Citigroup’s MAT/ASTA municipal bond funds and several other purported fixed income-related products. The award is the largest ever levied against a major Wall Street brokerage in favor of individual investors.
The ASTA/MAT funds have been the subject of an investigation by the Securities and Exchange Commission (SEC) for more than four years now. So far, details of that investigation have not been made public.
Meanwhile, investors like Ronald Beard keep waiting for an explanation. Beard and his family invested $400,000 in MAT/ASTA in 2007 on the recommendation of an advisor with Citigroup’s private banking arm. In the end, Beard lost almost all of his investment.
“We felt betrayed, and we were shocked,” Beard said in the USA Today story.
Christopher Puglisi of New Jersey also invested in ASTA/MAT in 2007 through an account at Citigroup’s Smith Barney division. He did so only after he was satisfied the money he invested from the sale of his trading business would be safe.
Instead, Puglisi lost more than $700,000.