Citigroup’s Mismanagement of MAT/ASTA Funds Produces “Grand Slam” Award for Investors


In his September 9, 2010 article in The Bond Buyer entitled “Judgment Aids Investors in Citi Case,” author Dan Seymour describes a recent Financial Industry Regulatory Authority (FINRA) arbitration award of more than $1.8 million in favor of MAT/ASTA investors as “[a] grand-slam judgment [that] has emboldened the lawyers and investors seeking to recoup losses on $2 billion in municipal arbitrage funds run by Citigroup.”

The amount of the award, while very substantial, is not the focus of the article. The reason why it is making news is the arbitration panel’s specific finding that Citigroup was guilty of negligent mismanagement of the MAT/ASTA funds, as well as negligent supervision of their employees. Citing J. Boyd Page, senior partner of Page Perry, Mr. Seymour noted that this was the first time that arbitrators explicitly found that Citigroup mismanaged the funds.

The decision is pivotal because it opens the door to claims by earlier investors that might otherwise be barred by statutes of limitation. Mr. Page estimates that these claims represent $500 million to $700 million of the total $2 billion invested in the MAT/ASTA funds, according to the article. “It tells a lot of people that there are still very viable claims, Mr. Page was quoted as saying.

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.

Citigroup told MAT/ASTA investors that it would adhere to a strategy of buying municipal bonds when the prices were low (i.e., when the yield spread of munis over Treasuries was high) and selling them when prices were high (i.e., when that spread ratio was low). Page Perry has uncovered evidence that Citigroup departed from these guidelines, buying when it should have been selling. As a result of those efforts, the firm is in a unique position to establish that Citigroup mismanaged the MAT/ASTA funds.