Citi Ordered to Pay $54M for Muni Hedge Funds
by Paula Schaap , Editor
Published:April 14, 2011
Citi was ordered to pay more than $54 million to investors in its ill-fated municipal arbitrage hedge funds.
The award was made by a Denver-based Financial Industry Regulatory Authority (FINRA) arbitration panel Tuesday.
The FINRA panel’s award included punitive damages of $17 million.
The muni arb funds, as they were known, were marketed through Smith Barney and Citigroup Private Bank from 2002 to 2007 to high-net-worth individuals. They were represented as having a risk profile only slightly greater than a typical municipal bond portfolio.
In reality, the funds were highly leveraged and proceeded to blow up as the credit crunch took hold in early 2008.
“This award demonstrates that even the most sophisticated investors were misled by Citi in the marketing and sale of the . . . leveraged municipal arbitrage product,” claimants’ attorney Steven Caruso of Maddox, Hargett & Caruso said in a statement.
Citi did not immediately return a call seeking comment.
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