Partner Bertrand Fry, co-chair of Pryor Cashman’s Investment Management Group and a member of the Corporate Group, spoke with FUNDFIRE for its story “Citi to Pay $180M to Settle Fraud Charges”.  The article discusses  Citigroup's agreement to pay nearly $180 million to settle Securities and Exchange Commission (SEC) charges that it defrauded investors through misleading marketing of two failed hedge funds. 

Following an investigation, the SEC charged Citigroup Global Markets and Citigroup Alternative Investments with defrauding investors in the ASTA/MAT and Falcon hedge funds by falsely claiming the funds were safe, low-risk investments that were suitable for traditional bond investors. The funds, which were managed by Citigroup’s Alternative Investments division and sold exclusively through advisors at Smith Barney and Citigroup Private Bank, ultimately collapsed during the financial crisis.

Fry was asked to comment on the potential impact of the settlement on the marketing of private funds generally, as well as on Citigroup in particular. The SEC’s charges show that it is critically important that portfolio managers and investor relations teams accurately present the risks and investment exposures of the funds they market, and that the SEC will scrutinize the statements made to investors against the actual activity of the fund.

Fry noted that, for Citigroup, accepting the SEC’s censure may have been a way to avoid facing more severe consequences. Fry said, “I don’t see this as being anything more than one more thing for Citigroup, and I don’t think it’s going to be a nail in the coffin of their hedge fund business.” The settlement is unlikely to ultimately have a big impact on Citigroup’s hedge fund business, but, like all hedge fund managers, Citigroup will be closely evaluating their supervision of their funds’ marketing.

To read the full article, please click here.*

*Subscription required.