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Citigroup's Hedge Fund Arbitration Losses Exceed $85 Million

Thursday, March, 22, 2012

Since 2008, Citigroup has been plagued with financial arbitrations. From 59 arbitrations related to hedge funds alone, they have racked up more than $85 million in arbitration losses. 39 more burned investors settled outside of arbitration. And the arbitrations keep coming.


Financial Arbitration Cases Set through 2013


The current list of arbitration cases against Citi continuing into 2013 is edging dangerously close to 100. The claims in these cases are approaching a total near $100 million. All in all, the potential hit Citigroup may face related to these hedge funds could be $1.5 billion.


The statistics on Citigroup's arbitration losses are harsh. One major attorney in the claims against Citi boasts a 17-0 winning streak. The large majority of cases brought against Citi to FINRA result in damages awarded to the plaintiff. Compare that to FINRA's total statistics of awards given to customers bringing complaints against brokers for any financial issue—52%. So why is Citigroup losing on this level?


Securities Arbitrations Showcase Damaging Internal E-Mails


Employees of Citigroup have routinely been accused of misleading customers about the risk level of certain investments. These hedge funds were touted as being approximately as safe as municipal bonds, but would generate a 6 to 8 percent return. But according to internal e-mails that became available to claimant attorneys, that isn't what Citigroup really thought of these investments.


In reality, Citigroup employees knew that these investments were volatile—as volatile as it gets. They infused $661 million into one of the funds (MAT/ASTA) in a failed attempt to stabilize it. Another hedge fund, Falcon Strategies, plummeted from $4 billion to $1.3 billion in assets in two quarters. Mountains of internal e-mails acknowledging the risks have proven to be the proverbial “smoking gun” in nearly every hedge fund related financial arbitration against Citi since they were uncovered.