Citigroup’s “Low Risk” Hedge Funds
August 24th, 2015Via: AFP:
US securities regulators ordered two Citigroup affiliates Monday to pay $180 million to settle charges that they defrauded investors by falsely claiming a pair of hedge funds were low-risk.
Citigroup collected nearly $3 billion from 4,000 investors by claiming the ASTA/MAT fund and the Falcon fund were low-risk investments akin to investing in government bonds, said the US Securities and Exchange Commission.
In 2008, both funds collapsed during the financial crisis.
“The funds were not bond substitutes, and an investment in the funds carried significantly greater risk than a bond investment,” the SEC said.
Both funds used “significant amounts of leverage” and were classified in an internal Citigroup rating system as having “significant risk to principal.”
“That rating, however, was not shared with the majority of investors and financial advisors,” the SEC said.
