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Citigroup and a group of failed fixed-income alternative funds known as ASTA/MAT are back in the news courtesy of Jack Lew, President Obama’s pick to lead the Treasury Department. In 2008, Lew served as chief operating officer of Citigroup’s alternative investments unit – the very same unit that created, managed and marketed the ill-fated ASTA/MAT municipal arbitrage funds that lost some 90% of their value in 2008.
Investors lost billions of dollars in the ASTA/MAT funds and went on to file arbitration claims with the Financial Industry Regulatory Authority (FINRA). Among other things, investors have alleged that the funds were marketed as less risky and more profitable than other fixed-income and municipal investments. In reality, however, the ASTA/MAT funds were highly leveraged, borrowing approximately $10 for every $1 raised.
Even as ASTA/MAT began to lose money, Citigroup managers continued to sell the funds and employ highly speculative investment strategies. When the funds eventually imploded, emails and memos detailed the level of panic within Citi’s own ranks. “The clients got duped,” said one memorandum from a high-ranking Citigroup official.
During a grilling by lawmakers this week, Lew told members of the Senate Finance Committee that he did not make investment decisions in his job at Citigroup. Still, as the Feb. 13 story on ABC’s Nightline program highlights, his presence can’t help but conjure memories of the financial devastation that ASTA/MAT caused investors.
Chris Puglisi, who was featured in the Nightline report, is one of those investors. Like many of Citi’s ASTA/MAT clients who put their money into what they thought were safe, relatively stable investments, Puglisi lost more than $700,000. Rather than accept Citi’s offer of 20 cents on the dollar, Puglisi, through the law firms of Maddox Hargett & Caruso, P.C. and Aidikoff, Uhl & Bakhtiari, filed an arbitration claim with FINRA.
“All the facts of the case were overwhelming,” said Puglisi in the Nightline story. “I was convinced the panel would rule in my favor.
He was right. A FINRA arbitration panel ruled in Puglisi’s favor, awarding 100% of what he lost in his ASTA/MAT investment. So far, Citigroup’s tab for reimbursing clients who claimed the financial giant misled them into investing in ASTA/MAT and marketing them as the safety equivalent of municipal bonds is more than $80 million, with numerous arbitration panels around the country ruling in favor of investors and their claims against Citi.
Indeed, on April 11, 2011, a FINRA arbitration panel ordered Citigroup to pay a record $54 million to investors who suffered losses in ASTA/MAT and several other purported fixed income-related products. Investors in the case were jointly represented at the hearing by Steven B. Caruso of the New York City office of Maddox, Hargett & Caruso, P.C. and Philip M. Aidikoff & Ryan K. Bakhtiari of the Beverly Hills, California, office of Aidikoff, Uhl & Bakhtiari.
The ruling, which included an assessment against Citigroup of $17 million in punitive damages, is one of the largest arbitration awards ever recovered on behalf of individual investors, according to FINRA.