Citigroup Alternative Investments LLC primarily provides its services to pooled investment vehicles, investment companies, institutional investors, pension plans; state and municipal government entities, and high net worth individuals. It manages client specific portfolios and investment funds including funds of hedge funds, funds of private equity funds, private equity funds, fund of real estate funds, and hedge funds for its clients. The firm invests in public equity and fixed income markets across the globe. Its fixed income investments are diversified across mortgage, municipal bond, leveraged loans, high-yield credit, investment grade and high yield bonds, bank loans, structured product...
399 Park Avenue
New York, NY 10022
Founded in 2002
The Securities and Exchange Commission Announces Citigroup Alternative Investments LLC and Citigroup Global Markets Inc. Aggress to Pay $180 Million to Settle Hedge Fund Fraud Charges
Aug 17 15
The Securities and Exchange Commission announced that two Citigroup affiliates have agreed to pay nearly $180 million to settle charges that they defrauded investors in two hedge funds by claiming they were safe, low-risk, and suitable for traditional bond investors. The funds later crumbled and eventually collapsed during the financial crisis. Citigroup Global Markets Inc. and Citigroup Alternative Investments LLC agreed to bear all costs of distributing the $180 million in settlement funds to harmed investors. An SEC investigation found that the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund, which collectively raised nearly $3 billion in capital from approximately 4,000 investors before collapsing. In talking with investors, they did not disclose the very real risks of the funds. Even as the funds began to collapse and CAI accepted nearly $110 million in additional investments, the Citigroup affiliates did not disclose the dire condition of the funds and continued to assure investors that they were low-risk, well-capitalized investments with adequate liquidity. Many of the misleading representations made by Citigroup employees were at odds with disclosures made in marketing documents and written materials provided to investors. According to the SEC's order instituting a settled administrative proceeding: the ASTA/MAT fund was a municipal arbitrage fund that purchased municipal bonds and used a Treasury or LIBOR swap to hedge interest rate risks. The Falcon fund was a multi-strategy fund that invested in ASTA/MAT and other fixed income strategies, such as CDOs, CLOs, and asset-backed securities. The funds, both highly leveraged, were sold exclusively to advisory clients of Citigroup Private Bank or Smith Barney by financial advisers associated with CGMI. Both funds were managed by CAI. Investors in these funds effectively paid advisory fees for two tiers of investment advice: first from the financial advisers of CGMI and secondly from the fund manager, CAI. CGMI and CAI failed to control the misrepresentations made to investors as their employees misleadingly minimized the significant risk of loss resulting from the funds' investment strategy and use of leverage among other things. CAI failed to adopt and implement policies and procedures that prevented the financial advisers and fund manager from making contradictory and false representations. CGMI and CAI consented to the SEC order without admitting or denying the findings that both firms willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, GCMI willfully violated Section 206(2) of the Investment Advisers Act of 1940, and CAI willfully violated Section 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8. Both firms agreed to be censured and must cease and desist from committing future violations of these provisions.