Throughout 2009, Citigroup was plagued with numerous lawsuits and arbitration claims relating to their failed hedge funds known as ASTA/MAT. Additionally, Citigroup was also a recipient of $45 billion of federal government bailout money issued by the Obama administration. Regardless of their woes, Citigroup planned to raise the base salaries by as much as 50% for its investment bankers and traders.
As reported June 24, 2009 by Bloomberg, Citigroup isn’t the only financial services firm instituting big salary increases for some of their top executives. Morgan Stanley and UBS plan to do so, as well. During 2009, Citigroup had been rocked by investor complaints and lawsuits connected to the failure of ASTA/MAT, a group of six hedge funds sold under the brand names of ASTA and MAT. Investors contend Citigroup misrepresented the funds as safe, conservative investments, a desirable alternative to traditional bond funds that would produce tax-advantages and reliable cash flows.
Millions of dollars in losses later, investors learned that Citigroup had employed a highly risky investing strategy known as municipal bond arbitrage, which entailed borrowing approximately $8 for every $1 raised. When the credit and bond markets began to experience trouble in the summer of 2007, ASTA/MAT started to lose value. Ultimately, the funds plummeted by some 90%.
Citigroup followed up the financial problems of ASTA/MAT by offering to compensate investors for their losses. The plan, however, translated into refunding only 45% to 55% of the value in their portfolios. To top it off, the deal required investors to forego future litigation against Citigroup.
"They just don’t get it,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn., of Citigroup. Unconcerned with their plight, Citigroup made plans to announce pay hikes for certain employees
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