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Citigroup Pays $180 Million to Settle Charges Tied to Two Smith Barney Hedge Funds

By Erwin J. Shustak, Esq.  of Shustak Reynolds & Partners, P.C. posted on Tuesday, August 18, 2015.

Citigroup, Inc. has agreed to pay $180 million to settle charges brought by the SEC which alleged the firm improperly marketed and sold through private bankers and Smith Barney brokers prior to the financial crisis. The SEC alleged that the two funds- The Falcon Strategies Fund and the ASTA/MAT Funds, were low risk, safe bond alternatives, despite the fact the actual offering materials stated they specifically should not be used as bond substitutes. From 2002 to 2007, Citigroup’s Smith Barney raised almost $3 billion from 4,000 investors, which resulted in billions of dollars in losses when the funds collapsed during the financial melt-down in 2008.

The Smith Barney unit was acquired by Morgan Stanley Wealth Management in 2009 as part of a joint venture. The SEC placed a significant amount of blame and liability on Citigroup’s Alternative Investment Unit, which acted as the manger for both funds, and was responsible for almost all of the promotional activities and sales pitches to investors. The SEC alleged the firm disseminate incorrect and misleading information about the funds without sufficient review or oversight to ensure information given to investors was accurate and not misleading.

Shares in the funds were marketed to high net worth, conservative investors looking for safe bond alternative investments and were sold in $500,000.00 blocks, marketed and sold by some of the top brokers at Smith Barney.

Shustak Reynolds & Partners, P.C. has extensive expertise and experience in the areas of securities, financial services and business law. For more information contact Erwin J. Shustak, Esq,, at 619.696.9500 or via email at [email protected].

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