WASHINGTON - The two Citigroup companies agreed to $180 million on Monday to settle charges they defrauded investors by misrepresenting that investments in two now-defunct hedge funds were safe, low-risk and suitable for traditional bond investors.

Citigroup Global Markets and Citigroup Alternative Investments raised almost $3 billion in capital from about 4,000 investors between 2002 and 2007 through the two funds -- ASTA/MAT and Falcon - before they collapsed in 2008, resulting in billions of dollars of losses.

The SEC found the two affiliates continued accepting additional investments and assuring investors of the funds' safety even as they started to decline. The "misleading representations" the Citigroup companies made were "at odds with disclosures made in marketing documents and written material provided to investors," a release from the SEC said.

"Firms cannot insulate themselves from liability for their employees' misrepresentations by invoking the fine print contained in written disclosures," said Andrew Ceresney, director of the SEC's enforcement division. "Advisers at these Citigroup affiliates were supposed to be looking out for investors' best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster."

More to follow …

Jack Casey is the Securities Reporter for The Bond Buyer.

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