SEC Probes Citigroup Bond Funds

The SEC subpoenaed several former in-house brokers as part of an investigation of Citigroup (C) debt funds.

The funds in question borrowed heavily and invested in mortgage bonds and municipal bonds, The Wall Street Journal said without naming its sources. The funds' value slumped by as much as 77% during the financial crisis, leading Citigroup to offer share buybacks that would reduce investor loss to about 61%.

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Three brokers, who at the time worked for a Citigroup unit, spoke to the SEC about alleged mismanagement and failure to disclose the funds' risk. The brokers resigned in 2008 in a dispute over how the funds were management.

If the SEC rules that Citigroup misled investors, the brokers stand to claim as much as 30% of certain penalties, under provisions of the Dodd-Frank financial regulatory reform.

The brokers' testimony is confidential. The SEC declined to comment.