Investor hedge fund claims cost Citigroup $85M and counting

— -- Citigroup's tab for reimbursing clients who said the financial giant misled them into investing in risky hedge funds marketed as the safety equivalent of municipal bonds has soared to at least $85 million.

And counting.

The payments, awarded since 2008 in 59 arbitrations or settlements, represent just part of a continuing legacy of the nation's financial collapse. At least 39 additional clients with similar claims reached confidential settlements before their arbitrations, conducted through the Financial Industry Regulatory Authority (FINRA), were decided.

The embarrassing total could climb even higher as dozens more cases are set for arbitration through 2013. One California law firm says it represents about 65 clients with claims that total "north of $50 million." A Florida firm has roughly 25 cases seeking "tens of millions of dollars."

Burned investors who recovered all or part of their Citigroup losses include the Callaway Golf board chairman, a Florida cable television developer and a New York entrepreneur who earned riches from Internet ventures.

"I had an investment adviser at Citi who was supposed to look out for my best interests, and he never warned me how risky this investment was," said Alex Zhardanovsky, co-founder of PetFlow.com, an online food and supply delivery service for pets. He lost roughly $350,000.

SEC probe

The Securities and Exchange Commission has been investigating Citigroup's management and marketing of the investments for nearly four years, according to a copy of a May 2008 request for documents the agency sent to the financial giant.

Citigroup's SEC filings have disclosed arbitrations and lawsuits over the investments without providing financial details. That information isn't required to be disclosed because it isn't material to the firm's bottom line. USA TODAY compiled the most current total by searching public arbitration awards, examining court filings and interviewing former Citigroup clients and their lawyers. Investors often must pursue arbitration rather than lawsuits if they have disputes with financial brokers.

The review came as Citigroup failed a government stress test in which the Federal Reserve estimated the losses banks could bear in a steep recession. It also comes as the resignation of a Goldman Sachs executive who accused that company of favoring profits over clients has stoked consumer concerns about how Wall Street works.

"Citi acted appropriately at all times in connection with the development, sales and marketing of ASTA/MAT," the company said. "Our disclosures were accurate and complete and detailed the risks associated with investing in these products. The products were sold only to highly sophisticated, high-net-worth investors ($5 million-plus in investable assets), all of whom signed subscription agreements in which they expressly acknowledged the risks associated with this investment."

Citigroup spokeswoman Danielle Romero-Apsilos said the company declined to answer questions about arbitrations regarding the funds.

The investments included a series of six fixed-income hedge funds or alternative investment funds known as ASTA or MAT. Part of Citigroup Global Markets, the investments were retail funds marketed to high-net-worth clients with minimum investments ranging from $250,000 to $1 million. They ultimately held billions of dollars in investor money.