Citigroup and MAT/ASTA Manager Still Deny Everything Despite Being Caught Red-Handed


The manager of Citigroup’s disastrous MAT/ASTA municipal arbitrage hedge funds, who left Citigroup in 2008 and now works in Bangladesh, recently told BusinessWeek that he has no regrets, no responsibility for what happened to investors, and would not have done anything differently. (“Ex-Manager Islam Has No Regrets After Funds Crash,” Donal Griffin and Anthony Effinger, 3/13/12). Reaz Islam, the fund manager, claimed that Citigroup disclosed all material risks and acted properly at all times in marketing and managing the funds. Arbitrators who have seen and heard the evidence, however, disagree. Financial Industry Regulatory Authority (FINRA) arbitrators have ordered Citigroup on multiple occasions to pay millions to those who invested in the MAT/ASTA funds.

Islam’s statements and Citigroup’s arguments, however, are contradicted by Citigroup’s own documents ? the internal emails, memoranda and recorded telephone conversations that were introduced into evidence at the arbitration hearings. This evidence shows that Citigroup had a company policy of marketing MAT/ASTA funds to traditional fixed income investors (i.e., the most risk-averse investors), even though Citigroup knew its hedge funds were among the riskiest of investments. Citigroup’s plan was to convince low-risk bond investors to buy its high-risk hedge funds by misrepresenting them as safe alternatives to municipal bonds. One such email read: “Our goal is NOT to target hedge fund clients who are willing to accept an unrestricted risk profile, but larger traditional fixed-income investors who are seeking alternatives and customized solutions without materially altering their risk characteristics.”

The arbitrators saw these documents and also saw the emails from numerous angry Citigroup brokers who had unwittingly misled their best clients thanks to misinformation supplied by Citigroup.

Another document shows Citigroup executives preparing for a conference call with these angry brokers by telling the portfolio manager (presumably Reaz) not to talk about his internal guidelines, which were different from the disclosures contained in the Private Placement Memorandum (offering document) provided to investors:
“You have internal guidelines that are different from what’s in the P.P.M., correct?” one executive asked.
“Yep, we do,” the manager replied.
“Yeah, so we focus on what’s in the docs, rather than, you know … ,” the executive said, trailing off.

For Islam and Citigroup to continue to say they did nothing wrong, in the face of documents that prove just the opposite, is remarkably arrogant, to say the least. Investor attorney J. Boyd Page, senior partner of Page Perry, said: “There can be no doubt that MAT/ASTA was a flawed investment product, that Citigroup and its affiliates misrepresented and failed to disclose material facts about these hedge funds, and that they negligently mismanaged them.”

Page Perry, an Atlanta-based law firm with a national practice, has represented multiple MAT/ASTA clients and continues to do so.