In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a South Florida panel specifically found that Respondents Citigroup Global Markets, Inc. f/k/a Citigroup Investment Services, and Citigroup Alternative Investments, LLC were guilty of negligent mismanagement of MAT/ASTA funds, as well as negligent supervision of their registered representatives. This award should open the door for many investors to recover the damages they sustained, particularly in early MAT/ASTA deals.
The FINRA arbitration panel awarded more than $1.8 million to Gerald J. Kazma Revocable Trust and Amzak Capital Management, LLC in connection with their purchases of MAT/ASTA municipal arbitrage fund investments. MAT/ASTA was a series of leveraged municipal arbitrage hedge funds offered by Citigroup Fixed Income Alternatives and sold through Smith Barney and Citigroup Private Bankers. MAT/ASTA was marketed only to high net worth clients of the firm as a fixed income alternative. In truth the MAT/ASTA funds were risky investments that exposed investors to a 100 percent or more loss of principal. The funds imploded in early 2008 causing catastrophic losses to investors.
The award is particularly noteworthy because the arbitration panel expressly found that Citigroup and its affiliates mismanaged the fund, and also that they failed to supervise. Specific findings like those made by the arbitration panel in this case are unusual, and are suggestive of an intent by the arbitrators to send a message.
Despite widespread evidence of material misrepresentations and omissions, Citigroup has elected to employ the “blame the customer” defense, which arbitration panels have rejected. When confronted with evidence that Citigroup misrepresented MAT/ASTA’s risk level to their brokers who passed the misleading information on to their clients, a high ranking Citigroup official said that it would be “unwise” for customers of the firm to rely on what their broker told them about a recommended product.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. Page Perry continues to investigate and pursue FINRA arbitrations on behalf of Citigroup/Smith Barney customers who suffered losses in fixed income alternative investments, including MAT/ASTA. For further information, please contact us.