Two Citigroup affiliates paying US$179m to resolve SEC case

Two Citigroup Inc affiliates have agreed to pay US$179.5 million to resolve federal regulators' charges of misleading investors in hedge funds that later collapsed.

The US Securities and Exchange Commission announced Monday the settlement with Citigroup Alternative Investments, a subsidiary of the bank, and Citigroup Global Markets, an affiliated company.

The amount they are paying, US$139.9 million plus US$39.6 million in interest, will be returned to investors in two hedge funds managed by the firms.

The two firms neither admitted nor denied wrongdoing but did agree to refrain from future violations of securities laws. The firms also were censured, bringing the possibility of a stiffer sanction if the alleged violation is repeated.

The SEC said the firms sold securities in two hedge funds from 2002 to 2007, raising nearly US$3 billion from mostly wealthy investors or institutions. The agency says the fund managers falsely told prospective investors they were low-risk and similar to bonds.

The hedge funds collapsed in 2008 during the financial crisis, sustaining billions of dollars in losses.

In talking to prospective investors, the fund managers failed to disclose the "very real risks" of the funds, the SEC said. Many of the managers' verbal statements to investors conflicted with the disclosures in fund marketing materials, according to the agency.

The fund managers "falsely assured them they were making safe investments even when the funds were on the brink of disaster," SEC Enforcement Director Andrew Ceresney said in a statement.

New York-based Citigroup said in a statement that it was pleased to have resolved the matter. Citigroup has said previously that the attorneys general of Massachusetts and New York also have investigated the management and marketing of the funds.