Class Action Suit Against Citigroup Results in $13.5 Million Settlement

Bank accused of misleading investors in proprietary alternative investments

A settlement has been reached in a class action against Citigroup, Inc. resulting in a $13.5 million payout by the banking giant. According to Law360, papers filed August 10, 2015 indicate Citigroup allegedly misled investors by allowing them to buy into the bank’s Corporate Special Opportunities fund without disclosing risky debt – debt that resulted in losses over $400 million.

In the October 2012 complaint filed by plaintiffs David Beach and Christopher Kelly, Citigroup is accused of misleading investors about trades made in the debt of ProSeiben, a German media company. According to the suit, Citigroup was to govern the fund, but violated scaling and concentration restrictions on investments.

Scaling is “the process of purchasing shares as the price decreases. To scale in (or scaling in) means to set a target price and then invest in increments as the stock falls below that price. This buying continues until the price stops falling or the intended trade size is reached. Scaling in will, ideally, lower the average purchase price. If the stock does not come back to the target price, however, the investor ends up purchasing a losing stock.” (Investopedia)

According to the suit, investors in this case “were given no honest opportunity to assess their decision to remain in the investment.” As a result, by the time investors withdrew their money, it was too late. In fact, according to the suit, the now-defunct hedge fund was liquidated for 3 cents on the dollar in 2008.

The preliminary settlement, filed in New York federal court, still requires a fairness hearing and court approval, but will dismiss with prejudice all related claims. Citigroup did not admit to any wrongdoing or liability, but rather chose to settle.

The Citigroup Corporate Special Opportunities fund is an example of a proprietary alternative investment fund common among Wall Street players. While these alternative investment strategies promise access to products and investment levels that may otherwise be available only to institutional investors, their proprietary nature can prove risky to investors. In this case, the alleged withholding of valuable information by the bank resulted in costly investor losses.

Alternative investments have become very popular on Wall Street. These Wall Street-created products, which are intended to serve as an alternative to traditional stocks and bonds, have become some of the biggest selling investments by brokerage firms. However, many alternative investments have collapsed in recent years causing claims to be brought against many large banks alleging that these investments failed to perform as designed or were improperly marketed to investors as being conservative or offering protection of principal despite the significant risks.

If you have been financially affected by the actions of Citigroup, Inc. or the misconduct of any financial adviser, you may be entitled to some measure of loss recovery. Silver Law Group’s experienced attorneys seek to help you get back what you have lost at the hands of financial advisers. We currently represent many investors throughout the United States and Puerto Rico for losses in leveraged bond funds, REITS’s and other alternative investments.

You can expect a complimentary consultation with a skilled attorney who can help you navigate the sometimes overwhelming landscape of securities arbitration or class action litigation. Every case at Silver Law Group is handled on a contingent fee basis, in which you do not pay legal fees unless we win your case. Start pursuing your rights and contact us today.