Last week, a FINRA arbitration panel issued a $54 million award to a group
of investors in a claim against Citigroup Global Markets Inc. Investors
filed the claim in 2009 and alleged
breach of fiduciary duty, fraud,
failure to supervise on the part of Citigroup in regard to various MAT and ASTA municipal bond
hedge funds ("Citigroup Slammed With $54 Million Award by FINRA Arbitrators
in MAT / ASTA Case," Bill Singer, Forbes.com, April 12, 2011).
Before the financial crisis hit, Smith Barney (a joint venture between
Citigroup and Morgan Stanley) marketed MAT Finance, LLC and ASTA Finance,
LLC hedge funds to risk-averse clients as safe, fixed-income alternatives.
By 2008, the products had lost 80 to 90 percent of their value.
The difference between what the products were sold as and what they were
was huge. In fact, the funds (touted as low-risk) were exposed to volatile
mortgage-backed products. They also were heavily leveraged; at one time
ASTA was borrowing $8 for every $1 raised, according to
Forbes.com writer Bill Singer. Despite all of this, Citigroup denied liability for the losses and requested
the FINRA arbitration claim be dismissed.
In the claim, investors requested over $48 million in compensatory damages.
They also requested punitive damages, lost opportunity costs, reimbursement
of fees paid to Citigroup, legal proceedings costs, and attorneys'
fees. The final award included $54 million in damages, plus interest and