Fraud was Worth It for Citigroup; Pays Only $180 Million after Gaining $3 Billion from Hedge Fund Investors

Wednesday, August 19, 2015
Charles Prince, Citigroup chairman, 2003-2007 (photo: Mark Wilson, Getty Images)

Before the financial crisis of 2008, Citigroup talked up two hedge funds with investors, saying the investments carried about the same risk as municipal bonds.


The pitch worked wonderfully for Citigroup, which wound up pulling in almost $3 billion for the ASTA/MAT fund and the Falcon fund from 2002 to 2007. Then Wall Street crashed the following year, and the 4,000 people who invested in the hedge funds watched them collapse along with their investments. Even as the funds were tanking, they took in another $110 million from investors, according to Courthouse News Service.


The Securities and Exchange Commission (SEC) went after Citigroup for making false and misleading claims about the funds and fined the corporation $180 million, or about 6% of the amount Citigroup flushed down the financial toilet via those funds.


“Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster,” Andrew Ceresney, director of the SEC’s enforcement division, said in a statement.


An internal Citibank rating showed the investment posed a significant risk to principal, Bloomberg reported. In addition, one of the funds was seeking a loan to stay afloat.

“We are pleased to have resolved this matter,” Citigroup spokeswoman Danielle Romero-Apsilos said in an e-mailed statement to Bloomberg.


They should be pleased. Not only did they get to settle the fine for pennies on the dollar but Citigroup did not have to admit or deny the SEC’s claims in agreeing to settle.

-Noel Brinkerhoff, Steve Straehley


To Learn More:

Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges (Securities and Exchange Commission)

Citigroup to Pay $180 Million on Crisis-Era Hedge Fund Fraud (by Matt Robinson, Bloomberg)

On $3B Fraud, Citigroup Whacks Citi for $180M (by Adam Klasfeld, Courthouse News Service)

Banks Say “Thanks for the Bailout,” Now We’ll Park our Profits in Overseas Tax Havens (by Steve Straehley, AllGov)

House Votes to Protect Citigroup if It Gambles and Loses (by Noel Brinkerhoff and Danny Biederman, AllGov)

Bank of America and Citigroup Lead Title Race for Banks with Most Fraud Violations (by David Wallechinsky and Noel Brinkerhoff, AllGov)


Daniel B 1 year ago
Ian? So. Citi broke even. The point Id like to make is, the investors got nothing back. They should have been fined 3 billion and the money given to the investors. Citi broke even! the government got 180 mil and the investors got screwed. Nothing to see. move along. move along!
Ian Berman 1 year ago
It might be a good idea for the reporters to learn the difference between raising funds and fees earned. Assuming a 6% fee for funds raised, the $180 million fine is probably about equal to the fees earned.

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