A pair of Citigroup affiliates have agreed to pay $180 million to hedge fund clients who saw their supposedly low-risk investments melt down during the financial crisis.
The Securities and Exchange Commission (SEC) announced the settlement on Monday, which does not require the bank or the affiliates to admit to any wrongdoing. The funds will be paid out to harmed investors.
The regulator charged that, leading up to the financial crisis, Citigroup Global Markets and Citigroup Alternative Investments made “false and misleading” statements to investors about the safety of potential investments. The affiliates attracted thousands of investors and nearly $3 billion in capital for a pair of funds that were billed to be a low-risk opportunity, similar to a bond fund.
However, the reality was that the funds were much riskier and ultimately collapsed during the financial crisis. The SEC claimed that employees “misleadingly minimized” those risks in selling the funds to investors, as employees continue to sell the fund as it began to crumble.
“Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures,” said Andrew Ceresney, director of the SEC’s Enforcement Division. “Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster.”