A securities arbitration panel has ordered a unit of Citigroup Inc. to pay a group of investors about $54 million for losses they incurred in a municipal-bond arbitrage fund that lost about 80% from mid 2007 through March 2008.
Three investors, including Brush Creek Capital, filed the claim in 2009, seeking damages related to MAT Five and several other municipal-bond hedge funds. Another investor, intellectual-property lawyer Gerald D. Hosier, is also a managing partner of Brush Creek Capital, a family investment company. The third investor, Jerry Murdock, is managing director and co-founder of Insight Venture Partners, a New York-based private-equity and venture-capital firm.
The MAT funds are in a series run by MAT Finance LLC, a name that refers to municipal arbitrage trusts. The funds, which have been the subject of a Securities and Exchange Commission probe, borrowed at low short-term rates and invested in longer-term bonds that paid higher rates. Three brokers who worked for a Citigroup unit contend the bank misled investors about how risky the funds were.
The $54 million ruling, entered Monday, includes $17 million in punitive damages. Awards of punitive damages are rare, lawyers say. The total includes $3 million in legal fees and $13,000 in costs. Citigroup must also pay interest and $21,600 to cover the entire hearing fee, which the panel typically splits between parties.
Lawyers for the investors weren’t immediately available for comment.
“We are disappointed with the decision which we believe is not supported by the facts or law and we are reviewing our options,” a Citigroup spokeswoman said in a statement.