Despite tens of millions in payouts and dozens of claims of wrongdoing, the former manager of a family of Citigroup hedge funds that collapsed in 2008 isn’t apologizing.
Quite the contrary: Reaz Islam, who managed the highly-levered ASTA/MAT municipal bond hedge funds, wouldn’t do anything differently. According to Islam, speaking out for the first time since the hedge funds failed four years ago, no one foresaw the financial collapse.
“I still think about it, given all the facts at that time, if we could have done anything differently,” he wrote to Bloomberg News. “The answer is consistently no.”
“This was a high-volatility, high-return strategy and never a safe and riskless investment as claimed by a few rogue, ambulance-chasing attorneys,” Islam said from his new base in Dhaka, Bangladesh. “I have no regrets and obviously learned a lot from the crisis, notably to expect the unexpected at all times and how people change color in times of crisis.”
“Unfortunately, like many things in life, the strategies no longer worked after the material and sustained change in correlation in early 2008, breaking 15-plus years of strong history of correlation, the key driver of the strategy,” Islam explained. “Every manager in the space had the same fate, with no exception.”
The Financial Industry Regulatory Authority has already ordered Citi to pay ASTA/MAT investors $60 million, and there are 69 claims remaining. Citi did not contact Islam, now a managing partner at LR Global Partners, about the cases.
While Islam says that those now suing “never” had “any complaints prior to the crisis in 2007 and 2008” and are “engaged in fraud or highly irresponsible,” he admits that he played no role in marketing the funds, the key issue in the complaints. But while his former investors have produced evidence that Citi private bankers did, in fact, minimize risks in the funds, Islam defended the marketing materials, saying, “we talked about every risk in the prospectuses” and that “the marketing materials, including the term sheet risk disclosures, were comprehensive, written in plain English and idiot-proof.”
Unsurprisingly, Citi’s legal adversaries aren’t impressed by Islam’s protestations.
“He should either have his mouth washed out with soap or have someone slap him a couple of times,” Michael Piuze, said. Philip Aidikoff, told Bloomberg, “his arrogance in the face of recorded conversations and broker e-mails is remarkable, but not unexpected.”
Like Islam, Citi has continued to deny wrongdoing.