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The NASD also censured the Citigroup arm for distributing 106 pieces of sale literature regarding hedge funds and funds-of-hedge funds between July 1, 2002 and June 30, 2003.
Ninety-five of those 106 pieces of literature cited performance targets for particular hedge funds, the NASD said.
"As hedge funds and funds-of-hedge funds are marketed more and more aggressively to individual investors, ensuring that those investors receive full and accurate information is critical," said Nancy Shapiro, vice chairman of the NASD, in a statement.
One particular piece of literature noted that the portfolio "seeks to earn an annualized return of 15% or more, net of all fees, over a three- to five-year investment horizon."
Citigroup neither admitted nor denied any wrongdoing.