Citigroup’s Smith Barney Draws Ire of Investors and Its Own Brokers Over ASTA/MAT and Falcon Funds

Citigroup is offering to cover some of the losses of investors involved with certain hedge funds sold by the firm’s Smith Barney brokerage unit. Citigroup and Smith Barney brokers allegedly recommended the funds, ASTA/MAT and Falcon, to investors looking for conservative investments.

Citigroup marketed the hedge funds as being ideal for retirees and other investors seeking safe investments, and Smith Barney raised hundreds of millions of dollars for the funds. The funds were reportedly marketed to investors as low-risk and accompanied by only a minimal probability of loss when, in fact, they came with high levels of risk-information that was kept from investors.

Last year, Citigroup told Smith Barney and Citigroup bankers to market the funds to their best clients. These clients were not informed that the new pitch initiative was an effort to inject new funds into Falcon, which had dropped by over 10%. The fund would be worth 25% of its original value by the end of March 2008.

In February, Citigroup disclosed to the SEC that it gave the Falcon funds a $500 million line of credit. The firm later said it would consolidate the funds’ $10 billion in assets and liabilities on its balance sheet. Citigroup said it would reimburse investors for part of their losses.

However, critics say that this complex partial compensation plan will allow each investor to get back about 25 cents for every dollar invested-only 28% of their losses. Smith Barney brokers have also voiced concerns that the plan is designed to give customers just enough so they won’t file lawsuits.

Last week, our securities fraud law firm announced that we are investigating claims for investors that lost money in Falcon and ASTA/MAT hedge funds. Any investors that accept Citigroup’s offers will forfeit their right to file a lawsuit against the company, so why not schedule a free consultation with our stockbroker fraud law firm for a free consultation to explore your legal options first? Contact Shepherd Smith Edwards & Kantas LTD LLP today.

Related Web Resources:

The Law Firm of Shepherd Smith Edwards & Kantas LTD LLP Investigates Losses in Falcon Hedge Funds,, July 2, 2008
Citigroup Acts to Bolster Hedge Funds, New York Times, March 11, 2008
Citigroup Smith Barney