Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | ASTA/MAT

Apr/11

19

Citigroup Inc., Ordered by FINRA to Pay $51 Mill to Investors

Comments off · Posted by admin in FINRA

In an April 12, 2011, article from InvestmentNews.com states that Citigroup Inc., the third-biggest U.S. bank, was ordered to pay more than $51 million to a group of investors in its MAT and ASTA municipal-bond hedge funds, which regulators began examining more than two years ago.

The Financial Industry Regulatory Authority arbitrators, which oversees U.S. brokerages, includes $17 million in punitive damages, according to a copy of the panel’s decision on Finra’s website. It’s the third-largest arbitration award by Finra and predecessor NASD since 1988, according to Securities Arbitration Commentator Inc., a Maplewood, New Jersey-based legal publishing and research firm.

The SEC or U.S. Securities and Exchange Commission has questioned former Citigroup brokers as part of a probe into whether the bank misled investors about risks associated with certain debt funds, people familiar with the matter said last year. Citigroup disclosed the inquiry into the MAT and ASTA funds in August 2008, after the funds tumbled to values ranging from 10 cents to 60 cents on the dollar amid souring credit markets early that year.

“We are disappointed with the decision, which we believe is not supported by the facts or law, and we are reviewing our options,” Danielle Romero-Apsilos, a spokeswoman for the New York-based bank, said in an e-mailed statement.

The FINRA arbitrators didn’t explain the reasoning behind their ruling. They ordered Citigroup to pay $21.7 million to patent attorney Gerald Hosier, $8.5 million to Brush Creek Capital LLC, which is owned by Hosier’s family, and $3.9 million to venture capitalist Jerry Murdock Jr., the ruling shows. Among their claims, plaintiffs had accused the bank of breaching a fiduciary duty, contract violation, fraud, breaking Finra rules and supervisory failures.

It was noted in the InvestmentNews.com article that Citigroup said in a regulatory filing last month that “several” investors in funds including MAT and ASTA had filed lawsuits and arbitration claims against the bank, and that many of the disputes are already resolved. The SEC is examining the marketing, management and accounting treatment of the funds, the company said, adding that it is fully cooperating.

If you feel you have been an alleged victim of  Citigroup, Inc., or it’s brokers, or you have found yourself in a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Aug/10

25

1861 Capital Management Funds Collapse

Comments off · Posted by admin in FINRA

The 1861 Capital Management Funds collapsed in February 2008, and  resulted in devastating losses to it’s investors.

Municipal bond arbitrage is considered a very complicated, risky investing strategy that involves trades of municipal bonds, short-term notes, and interest-rate derivatives. In recent years, a growing number of hedge funds, including 1861 Capital Management, began to employ municipal arbitrage, buying long-term municipal bonds that had slightly higher yields and pocketing the difference. The funds then hedged against large fluctuations in interest rates by essentially reversing that trade, using taxable securities. 

Municipal bond arbitrage also entails additional risks because in order to bolster returns, hedge funds must pile on the leverage.

So signs of trouble first appeared at the beginning of 2008, when municipal bond yields became hammered from the downturn in the markets. As a result, many hedge funds suddenly found themselves forced to liquidate their leveraged positions. 

These two facts – risk and leverage – that have become a bone of contention for many investors in municipal arbitrage hedge funds. As reported in a January 2009 study from the Securities Litigation and Consulting Group (SLCG) on the recent failure of leveraged municipal bond hedge funds, some 36 hedge funds – 1861 Capital Management among them – were marketed and sold to investors as “high yield, low-risk alternatives” to traditional municipal bond funds.

Nothing could have been further from the truth. All of the hedge funds featured in SLCG’s study contained considerably more risk than investors ever realized. They also produced significantly lower-than-expected returns. In the end, investors suffered to the tune of billions of dollars in losses.

It is believed that UBS sold the following fixed income arbitrage funds: 1861 Capital Municipal Enterprise Domestic Fund, LP, 1861 Capital Municipal Enterprise Offshore Fund, Ltd., 1861 Capital Discovery Domestic Fund, LP, and 1861 Capital Discovery Offshore Fund, Ltd.

Other securities brokerage firms, including UBS, misrepresented the 1861 Capital Management Funds as safe and secure fixed income products that were particularly suitable for retirees and the elderly, and failed to adequately disclose the true speculative nature and substantial risks inherent in these investments.

Hedge funds like 1861 Capital Management and ASTA/MAT were marketed by many brokers to investors as high-yield, more conservative alternatives to money-market fund or traditional municipal bonds. In reality, this was far from the truth. Not only is leveraged municipal bond arbitrage at the opposite end of conservative, but it also can produce lower-than-expected returns for investors and bring considerably more risk.

If you are a victim of the alleged fraudulent schemes of  your agent or broker, in particular USB, regarding the ASTA/MAT, 1861 Capital collapse, or any fraudulent sale of hedge funds through any of its agents, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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