Friday, September 11, 2015

SEC: Calling Leveraged Fixed Income Products Safe Is Fraud

Citigroup has agreed to pay $180 million to settle SEC charges related to its ASTA and MAT municipal bond funds. The advisers called the investments safe while hiding from clients the significant risks involved, according to the SEC.

Citigroup pitched the investment as a “better version of a bond” and instructed some clients to sell their unleveraged fixed-income portfolios in order to buy into the investment, according to the SEC. Internally, the private bank rated the funds as having “significant risk to principal,” while not sharing that assessment with the majority of investors and sales people, the SEC said.

Leveraging even safe investments always increases their risk and the failure to adequately inform investors of those risks and to guard against them can expose investors to significant losses and advisors to legal liability.

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