Archive for the “Citigroup ASTA Fund MAT fund” Category

For the past year, ASTA/MAT investors have been biding time as they wait for their arbitration claims against Citigroup to be heard. The focus of investors’ legal claims centers on a group of six hedge funds sold under the brand names of ASTA and MAT. Investors say Citigroup misrepresented the funds as safe, relatively low-risk investments.

Instead, the funds produced staggering financial losses for investors because of a highly risky investing strategy known as municipal bond arbitrage. When the credit and bond markets began to become unglued in the summer of 2007, ASTA/MAT plummeted in value.

As reported in a July 27 Wall Street Journal article, one series of Citigroup funds lost between 70% and 97% of their asset value by the end of February 2008. The funds were later given life support when Citigroup stepped in with more than $650 million of its own capital.

Recently, however, some ASTA/MAT investors and investors in similar funds have begun to see a light at the end of the tunnel. This month, a Financial Industry Regulatory Authority (FINRA) arbitration panel awarded a California family $2.1 million - the full amount of their losses on a $3 million investment in a municipal bond fund investment sponsored by First Republic Securities Co. (formerly owned by Merrill Lynch & Co.)

In May and June, three groups of investors in funds sold by Citigroup - the largest sponsor of such funds - won a total of $2.1 million in separate arbitration proceedings.

More victories may be the future. Philip Aidikoff of Aidikoff, Uhl & Bakhtiari says lawyers for investors have three dozen clients who had combined losses of more than $100 million on the Citigroup funds. Craig McCann, an expert witness who has testified for investors in a dozen related cases, estimates that Citigroup will have to pay out tens of millions in losses from such claims.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Less than two years ago, a highly complex and risky investing strategy known as municipal bond arbitrage created a financial tsunami for thousands of investors in two Citigroup hedge funds known as ASTA and MAT. Now, the same strategy has imploded once again - this time the victims include seven Norwegian municipalities and a Norwegian securities brokerage, Terra Securities. The group, which recently filed a lawsuit against Citigroup, lost tens of millions of dollars in complex securities investments they say were marketed and sold as low-risk, conservative products by Citigroup. 

According to the complaint, the municipalities say they were duped by Citigroup because the bank failed to warn them that the structured notes in question were highly risky and subject to being cashed out, at a significant loss, if the market price dropped below a certain point. 

As in the case of Citigroup’s ASTA/MAT hedge funds, the returns on the investments bought by the Norwegian towns were linked to a municipal bond arbitrage fund created by Citigroup. The fund involved leveraged investments in United States municipal bonds. The investments themselves were highly speculative and included collateralized debt obligations and mortgage-backed securities. In addition, the leverage associated with the fund created added risks - something the Norwegian towns, just like ASTA/MAT investors, were unaware of until it was too late. 

By May 2008, nearly all the Norwegian towns’ original investment in the Citigroup notes was wiped out. Meanwhile, Terra Securities found itself forced into bankruptcy. 

Court documents in the case accuse Citigroup of selling the notes “in order to unload what was becoming significant risk from either its own or its preferred customers’ balance sheets.”

The lawsuit against Citigroup was filed in the United States District Court for the Southern District of New York and also names as defendants Citigroup Global Markets and Citigroup Alternative Investments LLC.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Publicly referred to on Capitol Hill as “the problem child of banking,” Citigroup now faces a whole new set of issues. The latest trouble for the bank, which has received some $45 billion in taxpayer bail-out money to date, concerns huge losses in its private investments division and, specifically, two funds overseen by former Citigroup chief financial officer Michael Froman.

According to a July 20 story in the Wall Street Journal, the funds in question include the Citi Infrastructure Investors fund, a private-equity fund that amassed $3.4 billion to invest in various infrastructure projects before clients pulled the plug, exercising their right to restrict new investments because of previously failed deals. Adding to the fund’s problems were resignations by several key Citigroup managers, one of whom included Froman. Another Citigroup private-equity fund was shelved altogether after failing to attract clients. 

In January 2009, the Obama administration welcomed the former Citigroup manager of those troubled funds - Froman - into its fold as deputy assistant to the president and deputy national security adviser for international economic affairs. Given the depth of financial problems in the two funds formerly managed by Froman, the addition of the Citigroup executive to the president’s inner circle was viewed by many as controversial. 

Over the past year, Citigroup has been immersed in legal and financial issues related to its alternative investments. Two such products, the ASTA/MAT hedge funds, currently are the focus of numerous lawsuits and arbitration claims by investors who say Citigroup misrepresented the funds as safe, conservative and stable fixed-income investments. Any losses were projected to be minimal - no more than 5% a year in the worst-case scenario.

Instead, ASTA/MAT plummeted in value last summer because of turmoil in the financial markets. During the same time the funds were sinking, however, Citigroup allegedly told investors to “stay the course” and to expect ASTA/MAT to rebound once the market returned to normal.

That didn’t happen, of course. Investors later learned the ASTA/MAT funds were highly leveraged, borrowing approximately $8 for every $1 raised. Meanwhile, the managers ASTA/MAT continued to invest in some of the most risky and speculative investments possible, including subprime mortgages and derivatives.

Now Citigroup has new issues to deal with: massive losses in its infrastructure fund and the ongoing compensation controversy surrounding the fund’s former manager, Froman. According to the Wall Street Journal, as Froman prepared to begin his White House post in late January, he was due and later received more than $4 million in compensation from Citigroup.

Froman also had a big financial stake in the Citi Infrastructure Investors fund, which he had received as part of his pay package. When Froman wanted to cash out, he suggested Citigroup pay him at least $10 million for his stake in the fund, according to the Wall Street Journal.

Keep in mind, Froman was part of Citigroup’s Alternative Investment division - the same division that accumulated hundreds of millions of dollars in losses last year because of high-risk and esoteric investments. As the financial losses multiplied, a number of Citigroup executives in that division - including Froman - bailed, with many collecting seven-figure salaries and bonuses as their parting “gift.”

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Despite the fact it has numerous lawsuits and arbitration claims pending over a group of failed hedge funds known as ASTA/MAT - not to mention having received some $45 billion of federal govern ment bailout money - Citigroup plans to raise the base salaries of its investment bankers and traders by as much as 50%. 

As reported June 24 by Bloomberg, Citigroup isn’t the only financial services firm instituting big salary increases for some of their top executives. Morgan Stanley and UBS plan to do so, as well. 

Over the past year, Citigroup been rocked by investor complaints and lawsuits connected to the failure of ASTA/MAT, a group of six hedge funds sold under the brand names of ASTA and MAT. Investors contend Citigroup misrepresented the funds as safe, conservative investments, a desirable alternative to traditional bond funds that would produce tax-advantages and reliable cash flows. 

Millions of dollars in losses later, investors learned that Citigroup had employed a highly risky investing strategy known as municipal bond arbitrage, which entailed borrowing approximately $8 for every $1 raised. When the credit and bond markets began to experience trouble in the summer of 2007, ASTA/MAT started to lose value. Ultimately, the funds plummeted by some 90%.

Citigroup followed up the financial problems of ASTA/MAT by offering to compensate investors for their losses. The plan, however, translated into refunding only 45% to 55% of the value in their portfolios. To top it off, the deal required investors to forego future litigation against Citigroup.

Meanwhile, the New York-based bank is announcing pay hikes for certain employees.

“They just don’t get it,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn., of Citigroup. 

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Citigroup CEO Vikram Pandit can’t seem to catch a break these days. And with good eason. For months, the bank and its leader have been embroiled in investor lawsuits connected to the marketing and sale of a group of proprietary Citigroup hedge funds sold under the brand names ASTA and MAT. Marketed to investors as safe fixed-income funds with losses not to exceed 5%, the hedge funds were later crucified by the credit crunch. Ultimately, the value of the funds fell dramatically - between 60% to 80% - and cost many investors their life savings.

Legal issues surrounding ASTA/MAT aren’t the only problems facing Pandit. Adding to his woes: $36 billion of net losses during the past six quarters.

More criticism was levied on Pandit last week courtesy of Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC). In a story appearing June 5 in the Wall Street Journal, it was reported that Bair’s office had been maneuvering to oust various members of Citigroup’s top executives. Specific individuals were not identified in the Wall Street Journal story, but Pandit’s name was rumored to be among those on Bair’s list.

Adding fuel to Citi’s management shake-up rumor mill is the apparent delay of a stock swap agreement between the U.S. Treasury Department and Citigroup. Announced three months ago, the deal entails converting $53 billion of Citigroup preferred stock into common shares, giving the U.S. government a 34% stake in the bank.

Another black mark occurred for Citigroup on June 1, which signaled the bank’s final day on as part of the Dow Jones Industrial Average. On Monday, June 8, Citigroup was replaced by The Travelers Companies.

Citigroup, which is the recipient of $45 billion in taxpayer funds under the federal government’s Troubled Asset Relief Program (TARP), has watched its stock deteriorate for more than a year now. Since mid-January, Citigroup shares have traded below $5. On June 8, the stock closed at a shocking low of $3.42; by comparison, the price was $20.48 at this same time last year.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Hedge funds have become a hotbed of controversy lately, with fund managers facing state and federal investigations, lawsuits and arbitration claims over disclosure issues and charges of misleading investors. Case in point: Citigroup’s ASTA/MAT hedge funds. The failure of ASTA/MAT, which consists of six hedge funds that were sold under the brand names of ASTA and MAT, has resulted in a slew of complaints from investors who say the funds not only were misrepresented, but also that Citigroup raked in millions of dollars in fees and unexplained commissions in the process.

The losses experienced by ASTA/MAT and the lawsuits that have followed are a black eye for Citigroup. According to investors, Citigroup billed MAT and ASTA as safe, conservative investments - alternatives to traditional bond funds that were designed to produce tax-advantages and reliable cash flows. Moreover, investors would be exposed to minimal risks.

In reality, Citigroup took on a risky investing strategy known as municipal bond arbitrage, which involved borrowing approximately $8 for every $1 raised. When the credit and bond markets began to falter in the summer of 2007, and continue their descent in 2008, ASTA/MAT responded accordingly. Ultimately, that mayhem and volatility caused the funds to lose more than 90% of their value.

Despite the financial bleeding, however, Citigroup management continued to push ASTA/MAT to investors. The reason may have had something to do with the millions of dollars in exorbitant fees that Citigroup and its brokers collected.

Citigroup later offered to compensate investors for their losses in ASTA/MAT. The plan, which entailed refunding investors only 45% to 55% of their portfolio’s value, required investors to forego any future litigation against Citigroup for their financial losses in the funds.

Understandably, many investors said a resounding “no” to Citigroup’s settlement offer. Instead, they filed lawsuits to recover their losses, charging Citigroup of misrepresenting ASTA/MAT as a relatively safe, low-volatility bond fund investments when in actuality the funds were highly leveraged and subject to market volatility.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

It used to be common practice for hedge funds like 1861 Capital Management, Citigroup’s ASTA/MAT and Stone & Youngberg Municipal Advantage Fund to tout the promise that first built the hedge fund industry: to produce profits even in tough markets. Now it’s a different story altogether. The hype is faded, and the credit crunch has caused more banks to pull credit lines from hedge funds and investors to shun this once-popular-but-secretive corner of the investing world.

For hedge funds that invest in the $2.6 trillion municipal bond market, troubles are even more pronounced. As reported March 1, 2008, by the Wall Street Journal, turmoil in the municipal-bond market has forced a number of hedge funds to unwind complicated bets and in the process unload billions of dollars worth of securities. Among those hedge funds: New York-based 1861 Capital Management.

Municipal bond arbitrage is considered a 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 risk because in order to bolster returns, hedge funds must pile on the leverage.

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. 

It’s 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.

In reality, 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.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

The Ospraie Fund. 1861 Capital Management. ASTA/MAT. Tontine Partners LP. The freewheeling world of hedge funds has crashed and burned in recent months, its fate tied to the financial crisis, investor redemptions and illiquid assets. As a result, thousands of individual investors, charities and pension fund holders are now facing unexpected and unprecedented financial losses.

The past year has seen hundreds of hedge funds go out of business. In 2008, some 920 funds were shuttered - a figure that eclipses the prior record set in 2005 when 848 hedge funds closed down. On average, hedge funds lost more than 18% last year. The previous worst performance by hedge funds occurred in 2002, posting a loss of 1.5%. In 2007, hedge funds returned 9.9%.

As hedge funds literally fought for survival in 2008, many would lose the battle altogether. Among them: The Ospraie Fund, which posted nearly a 40% loss in 2008. An even worse performance came from the Tontine Partners LP hedge fund, which ended the year down an astonishing -91.5%.

Other funds such as Tudor Investment Corp. and Citadel Investment Group LLC have been forced to limit investor redemptions or risk implosion. Earlier this month, Citadel, whose flagship hedge fund lost 55% in 2008, announced plans to resume payouts to investors. Investors’ access to their money, however, will occur no sooner than April 1.

Hedge funds that trade municipal bonds also are experiencing a rough time these days. As reported Feb. 29, 2008, by MarketWatch, problems with bond insurers and other disruptions borne out of the global credit crunch have pushed yields on municipal bonds close to, or above, those of comparable Treasury bonds. For hedge funds that try to make money from the difference, called the spread, between the yields, the end result translates into the likelihood of margin calls.

That’s exactly what happened to hedge funds like Citigroup’s ASTA/MAT hedge funds. In using a municipal arbitrage strategy, the funds ultimately were forced to sell their positions at fire-sale prices, causing significant losses to investors. 

The dismal performance of hedge funds has continued into 2009. One of the most recent hedge funds to shutter is the Highland CDO Opportunity Fund, which encountered massive losses from its holdings of high-risk collateralized debt obligations (CDOs). In October, similar circumstances forced Highland to close two other hedge funds: the Crusader Fund and the Credit Strategies Fund.

The shocking upheaval in the hedge fund industry is casting new light on the largely unregulated world of hedge funds. Registration with the Securities and Exchange Commission (SEC) is done on a voluntary basis only. At the same time, investments in hedge funds have grown astronomically. At their peak, approximately 10,000 hedge funds managed nearly $2 trillion in assets. Today, the figure is closer to $1 trillion.

On Jan. 29, 2009, a new bill was introduced in the Senate designed to improve oversight and transparency of the hedge fund industry. Described by Senators Chuck Grassley and Carl Levin as an “attempt to address securities law loopholes that enable hedge funds to operate under a cloak of secrecy,” the Hedge Fund Transparency Act of 2009 (S. 344) would make it mandatory for hedge fund managers to register with the SEC and open up their books to government examiners.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

The year of 2008 may go down in history as a year of scandals gone wild. From Bernie Madoff’s $50 billion Ponzi scheme to the collapse of the auction-rate securities market, individual and institutional investors alike have found themselves entangled in a financial nightmare that seems to go from bad to worse.

For investors who’ve been stuck holding illiquid auction-rate securities since February 2008, the likelihood that regulators will find a solution to their dilemma anytime soon is remote. Even though some of Wall Street’s biggest firms have bought back more than $60 billion of their clients’ securities, another $135 billion of the bonds still remain frozen.

As reported Dec. 31 by the Boston.com, the illiquidity status of auction-rate securities is hitting small businesses especially hard. Vicor Corp., which makes power systems for electronics, is one of those businesses. The company invested nearly $40 million in auction-rate securities before the market’s collapse in February. At the time, the company’s management thought the bonds were safe and liquid investments. Now, the earliest that Vicor can expect to see some of its auction-rate money is 2010.

UBS is one of the firms that sold Vicor the auction bonds, and it has pledged to buy back about $18 million worth of the securities beginning in June 2010. However, Vicor also bought another $20 million of auction securities from Bank of America, which has yet to offer any kind of buy-back program to Vicor and other large institutional and corporate holders of auction-rate securities.

Another company with a huge chunk of its money tied up in illiquid auction-rate securities is Tufts Health Plan. The Massachusetts-based health care provider has nearly half of its total cash holdings - approximately $30 million - in auction-rate securities at Citigroup. So far, Citigroup hasn’t announced any plans to help Tufts get its money back.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

After posting an $8.9 billion fourth-quarter loss - nearly double what analysts initially predicted - New York-based Citigroup is resorting to drastic measures as it tries to raise sorely needed capital. The banking giant will split into two separate entities: Citicorp and Citi Holdings.

Citicorp will focus on traditional banking, with Citi Holdings to include the bank’s asset management and consumer finance units, as well as some $300 billion of Citigroup’s most risky assets. Citi Holdings also will oversee Citigroup’s 49% stake in the recently announced venture with Morgan Stanley.

By splitting in two, CEO Vikram Pandit believes Citigroup will be able to free up its capital, while at the same time unload the more troubled assets that have continued to plague the bank for the past year.

Citigroup’s fourth-quarter loss also included $7.78 billion in write-downs on subprime mortgages, collateralized debt obligations and structured investment vehicles. In total, Citigroup’s losses have surpassed the $90 billion mark over the past 15 months.

During the Jan. 16 conference call with analysts, Pandit also noted the likelihood of future layoffs. The bank, which already reduced its workforce by 52,000 in 2008, is expected to let go another 23,000 employees by the end of December 2009.

Citigroup’s ongoing financial issues are reflected in its share price, which plunged nearly 90% in 2008. In October, the bank was forced to accept an emergency rescue of $45 billion from the U.S. Treasury.

Meanwhile, news of Pandit’s restructuring plans did little to improve investor confidence. Citigroup stock was trading at $3.50 on Jan. 16. Two years ago on that day, the stock price was $54.39.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.