Citigroup Loses Appeal on Investor ASTA/MAT Litigation

Citigroup marketed high risk investments to wealth management clients without fully disclosing the degree of risk, according to a recent New York Times article by Gretchen Morgenson titled “Secrets of a Sales Machine.”

Details came to light in recent court filings, after Citigroup appealed an award of $54 million granted by a securities arbitration panel. Most of the award covered investment losses, but $17 million was for punitive damages and $3 million was allocated for legal fees.

Citigroup clients Gerald D. Hosier and Jerry Murdock Jr., both high net worth individuals, had sued the bank for fraud and breach of fiduciary duty. Even though they were sophisticated investors, they claimed they were misled about complex investments that Citigroup positioned as being safe.

Internal Citigroup documents showed that the bank itself considered the investments to be risky, with a risk rating of 5 on a scale of 1 to 5 where 1 is very safe and 5 is high risk.

Specifically, the investments were municipal arbitrage portfolios known as ASTA/MAT, part of a family of “alternatives.” Sallie Krawcheck, then head of wealth management at Citigroup, was informed internally that these investments always carried a risk rating of 3 to 5. This rating information was not disclosed to investors.

In late December, Judge Christine M. Arguello, in the District of Colorado, ruled against Citigroup and affirmed the award.

If you feel that you were misled in recent investments, contact Fort Lauderdale securities attorney Howard Kahn to discuss your case. He is a certified FINRA arbitrator, and has represented many investors in bank and brokerage disputes.