The Bankruptcy Estate of Terra Securities ASA and seven Norwegian municipalities have filed a securities fraud action against Citigroup Global Markets, Inc. and related entities, as reported in the Wall Street Journal and news wires. The complaint contends that, in 2007, Citigroup fraudulently induced Terra and the municipalities into purchasing notes linked to a “tender option bond” (or TOB) fund managed by Citigroup. TOB funds hold leveraged positions in U. S. municipal bonds. The municipalities lost approximately $90 million and Terra, a Norwegian securities firm, experienced additional losses when it was forced into bankruptcy. The case was filed in the United States District Court for the Southern District of New York.
“Citigroup’s marketing materials contained misleading statistics that concealed from both Terra and the municipalities the significant risk inherent in the fund-linked notes,” said Jon Skjorshammer, the court-appointed administrator of Terra from the Norwegian law firm Selmer & Co. “Moreover, Citigroup specifically directed Terra to present these deceptive materials to the municipalities. We believe we have substantial claims against these defendants, and we intend to pursue them fully.”
According to the articles, Citigroup, through Terra, marketed and sold to the municipalities over $115 million in notes linked to the TOB fund in May and June 2007. The municipalities contend they relied on Citigroup’s solicitation materials that contained statistical data, which falsely represented that the TOB fund was hedged against volatility. The TOB fund was declining by August 2007, and in September 2007, the municipalities were required to post additional collateral. As a result of Citigroup’s misrepresentations, the municipalities lost most of their original investment by May 2008, and Terra filed for bankruptcy in November 2007, according to the articles.
The lawsuit further contends that the deceptive materials provided to Terra for presentation to the municipalities were prepared in New York by Citigroup Global Markets and Citigroup Alternative Investments. These materials failed to adequately disclose the significant credit risk underlying the fund’s strategy, presenting it instead as a low-risk arbitrage opportunity.
Citigroup Global Markets and Citigroup Alternative Investments are already facing an array of similar claims arising out of their sales of similar TOB funds named MAT and ASTA. Such funds were marketed as fixed income alternatives only to sustain staggering losses when management disregarded known risks and investment guidelines.
Affected investors should consult with qualified counsel to determine their rights and potential remedies.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing institutional and individual investors in TOB funds sold by Citigroup and its affiliates.. For further information, please contact us.