Fox Business has uncovered some internal communications circulated amongst high level executives that reveals that even the Citi executives were not confident of the safety and soundness of products they were being told to sell clients before the financial crisis took hold.
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According to these internal communications uncovered, it seems that the it was difficult for the investors to judge the risks they were taking when investing in Citigroup’s risky and speculative investments as the advisors selling these products were themselves unclear about them.
If these communications that are now floating in the media are to be believed the private bankers and financial advisors investing clients’ money in Falcon and ASTA/MAT funds believed them to be safe investments.
But when customers lost close to US$2 billion on these speculative investments, mostly municipal bonds, it became clear that the advisors themselves were not given the clear picture.
According to the Fox reports investments such as Falcon and ASTA/MAT "became nearly worthless, dropping a breathtaking 80% to 97% from 2007 to March 2008. More than 2,000 of the bank’s wealthiest clients lost the majority of their initial investment, court documents show."
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By GlobalData"The issue is that clients got duped, and we as FAs [financial advisors] got duped on what we were getting," says on of the email published by Fox.
These document in the open also testify to the fact that Citi’s top executives, including new chief executive Vikram Pandit and Sallie Krawcheck, were time and again informed about the problems even while the funds were melting but they choose to ignore them.
In regards to the two funds that are in the middle of the whole debacle that Citigroup is facing, the group had issued a meme in 2008 which admitted that "clients and FAs [financial advisors] feel that the risk, especially re: Falcon, was not fully articulated" to clients, that instead the fund was "marketed as effective bond alternative with limited risk."
Citigroup is facing many legal actions and has been sued by many investors who lost their money, in fact it has resulted in one of the largest settlements ever awarded by the Financial Industry Regulatory Authority to individual investors.
That settlement, a total of US$54.1 million, which included US$17 million in punitive damages levelled against Citigroup, was given to two investors in 2011.
