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Home > Cases > Citigroup > ASTA/MAT Never Delivered On Citigroup's Promises

ASTA/MAT Never Delivered On Citigroup's Promises

When Citigroup first launched its ASTA and MAT hedge funds, investors thought they were putting their money into a relatively low-risk, conservative product. After all, that's what Citigroup's Smith Barney brokerage arm told them. As fixed-income alternatives, the six hedge funds that comprised ASTA/MAT could provide safety and stability - the ideal investment for risk-averse investors looking for tax-protected distributions. A short time later, the funds had lost more than 90% of their value, leaving investors asking what went wrong?

Investors got their answer after learning the funds had been exposed to high-risk mortgage-backed products, a fact that was miles apart from the safe and conservative sales description that Citigroup initially pitched.

During the time that the ASTA/MAT funds began to plummet so drastically in value, investors were repeatedly told by Citigroup management to stay the course - that the funds would rebound when the market returned to normal.

That never happened. The ASTA/MAT Fund was highly leveraged, borrowing approximately $8 for every $1 raised. Despite financial troubles and dwindling assets values, however, the fund's management continued an investing strategy that entailed betting on the most risky and speculative of investments possible. In the end, investors paid the price, with the so-called solid, stable product collectively costing them billions of dollars.

The demise of the ASTA/MAT Fund wasn't Citigroup's only hedge fund problem. A similar scenario happened in another group of highly leveraged funds run by the bank. In 2007, huge losses in a $1 billion hedge fund known as Falcon Strategies essentially wiped out investors' entire equity. Like ASTA/MAT, assets in the Falcon Strategies fund were tied to mortgage-backed securities and other risky debt instruments.

Many of the investors in ASTA/MAT and Falcon were retirees. They couldn't afford an investment that might be subject to market volatility or speculative derivative deals. That's why ASTA/MAT seemed ideal. Now, they know otherwise, and have the losses to prove it.

To compensate for investors' unforeseen financial issues, Citigroup came up with a “payback” plan last year. In June 2008, it agreed to offer investors in the failed ASTA/MAT fund about half of the value of their original investment. The catch: Investors had to waive their rights of bringing legal action in the future.

The bottom line: ASTA/MAT and Falcon investors lost both their money and their faith in investments that never lived up to the promises made by Citigroup and the portfolio managers responsible for running the funds.

If you are an investor of Citigroup's MAT or ASTA hedge funds, you may have legal recourse. Please contact us at 866-827-6537 to explore your options. Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in valuating their legal options when confronted with subprime and other mortgage-related investment losses.


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