Brokers May Reap Big Rewards for Reporting Alleged Fraudulent Conduct by Citigroup in the MAT/ASTA Municipal Arbitrage Funds


The Wall Street Journal reports that several former Citigroup/Smith Barney brokers have been sharing information with the SEC about alleged fraudulent practices associated with the MAT/ASTA municipal bond arbitrage funds that lost more than 75% of their value between 2007 and 2008. (“Citi Debt Funds Probed by SEC,” 11/8/10). These brokers may stand to be compensated handsomely if the SEC imposes big financial penalties against Citigroup for misrepresenting the risks of MAT/ASTA funds. That is because of an obscure provision in the recently enacted Dodd-Frank Financial Reform Act creating a financial rewards program that can pay a large sum of money to any person who provides “original information” to the SEC that leads to a successful enforcement action relating to the violation of federal securities laws. The Act provides for payments to “whistleblowers” ranging between 10% and 30% of the amount recovered by the SEC.

Given that recent SEC fines have been in the hundreds of millions of dollars, there is the potential for a lot of money to be made by both whistleblowers and their lawyers, who typically handle such cases on a contingent fee or percentage basis. The new law allows whistleblowers represented by lawyers to present their information and claims anonymously, and it also contains legal prohibitions against industry retaliation as well as the right to sue any employer in the industry who retaliates against a whistleblower. According to Atlanta attorney Craig T. Jones, “it is crucial that the whistleblower have a lawyer to not only protect his or her legal rights, but to confidentially funnel the information to the appropriate officials while protecting the client’s anonymity and negotiating for the best possible reward.” The new law also makes it illegal for brokerage firms to retaliate against whistleblowers, giving whistleblowers the right to sue their employers if they are fired, demoted, or blackballed for reporting misconduct to management or regulators.

Jones’ firm, Page Perry and its senior partner J. Boyd Page, represent dozens of investors who lost money in the MAT/ASTA funds and were marketed as being a low-risk fixed income alternative but which were actually a very high risk investment as Citigroup well knew. Mr. Page observed that “recent MAT/ASTA arbitration awards against Citigroup including a $1.8 million award in the Kazma v Citigroup where arbitrators specifically found that Citigroup was guilty of negligent mismanagement and negligent supervision which are clearly not individual broker problems may provide support for the brokers’ efforts.” The brokers who were mentioned in the Wall Street Journal article “blew the whistle” on Citigroup because they obviously believed that it had falsely marketed a flawed product to the brokers’ best customers and engaged in other misconduct, causing the brokers to lose business, suffer damage to professional reputation, and be subjected to legal action. While Page Perry only represents investors in the Citigroup MAT-ASTA cases, “we regularly talk with brokers and other financial industry whistleblowers in cases where we are not representing customers,” says Jones.

According to Jones, “the MAT-ASTA case is just one example of how brokers and other financial professionals can right wrongs in the industry and be rewarded for it. If you have information about potential securities laws violations that you believe would be of value to the SEC, we encourage you to speak to a lawyer as soon as possible.” Jones’ firm, Page Perry, is based in Atlanta but has a nationwide practice handling litigation and arbitration claims related to the securities industry.