Citigroup Hit with a $6.4 Million Judgement Involving its MAT/ASTA Municipal Arbitrage Funds.


Citigroup’s problems with its proprietary MAT/ASTA municipal arbitrage funds just keep growing. A recent Wall Street Journal article by Suzanne Barlyn entitled “Citi Units Must Pay $6.4 Million Over Muni-Arbitrage Loss,” which concerns Citi’s disastrous MAT/ASTA municipal arbitrage funds, reports a significant $6.4 million award issued against Citigroup in a MAT/ASTA case by a Financial Industry Regulatory Authority (FINRA) arbitration panel. Despite their high risks, the funds were marketed as an alternative to municipal bond portfolios. The funds also falsely emphasized their strong risk management and controls.

The claimants, which included the head of a Chicago-area investment-banking firm as well as various trusts and limited-liability companies, suffered losses in MAT/ASTA funds that lost as much as 80% between 2007 and 2008. They asserted various causes of action including fraudulent misrepresentation and breach of fiduciary duty.

The case is D. Theodore Berghorst, Berghorst Snowbird LLC, Berghorst 1998 Dynastic Trust, Deborah H. Berghorst, as Trustee of the Berghorst 1998 Dynastic Trust, and Vector Managed Holdings, L.L.C. vs. Citigroup Global Markets, Inc. d/b/a Smith Barney, and Citigroup Alternative Investments, FINRA Dispute Resolution Arbitration Case Number 08-04466.

The MAT/ASTA funds also suffered from serious mismanagement problems. Last August, a different FINRA arbitration panel issued a highly significant award ordering Citigroup to pay more than $1.8 million to two MAT/ASTA fund investors, because Citigroup mismanaged the funds. See Gerald J. Kazma, as Trustee of the Gerald J. Kazma Revocable Trust, et al. vs. Citigroup Global Markets, Inc., et al, FINRA Dispute Resolution Arbitration Number 09-02697.

The arbitrators in that case specifically found that Citigroup and Citigroup Alternative Investments, LLC negligently mismanaged the MAT/ASTA funds and negligently supervised their employees. Because Citigroup’s mismanagement began during 2006 and continued through early 2008, even early MAT/ASTA investors in the funds are eligible to pursue mismanagement claims against Citigroup. This greatly expands the number of potential clients who can pursue valid claims against Citigroup and its affiliates.

J. Boyd Page, the senior partner of Page Perry, a law firm specializing in representing investors, said, “The mismanagement claim is especially important for investors who purchased MAT/ASTA between 2002 through 2005, because they may mistakenly believe that they have waited too long to pursue a claim for damages against Citigroup. It may not be too late, but they should act promptly to protect their rights.”

“Depending on the facts and circumstances in each case,” Mr. Page explained, “our legal team will have the opportunity to establish three separate bases for recovering damages, which increases the likelihood of an award. Those three bases are that MAT/ASTA was a flawed investment product; that Citigroup and its affiliates misrepresented and failed to disclose material facts about the funds; and that Citigroup and its affiliates were guilty of negligent mismanagement of MAT/ASTA and negligent supervision of their employees. ”

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. Page Perry is counsel in dozens MAT/ASTA cases involving tens of millions of dollars in losses, and 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 and Falcon. For further information, please contact us.