UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 83123 / April 27, 2018

ADMINISTRATIVE PROCEEDING 

File No. 3-16757

In the Matter of

Citigroup Alternative Investment LLC and 

Citigroup Global Markets Inc.

Respondents.

ORDER APPROVING PLAN OF 

DISTRIBUTION

I.

On August 17, 2015, the Commission issued an Order Instituting Administrative and 

Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 

15(b)(4) of the Securities Exchange Act of 1934, and Sections 203(e) and 203(k) of the 

Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist Order (the “Order”) against Citigroup Alternative Investments LLC and 

Citigroup Global Markets Inc. (collectively, “Respondents”). Pursuant to the Order, the 

Respondents have paid a total of $179,562,328 (the “Distribution Fund”). The Order further 

provided that the Respondents will be responsible for paying all reasonable costs and 

expenses of the distribution.

On April 14, 2016, the Commission issued an order appointing Garden City Group, LLC

(“GCG”) as fund administrator of the Distribution Fund.1 On September 11, 2017, the Notice of 

Proposed Plan of Distribution and Opportunity for Comment (the “Notice”) and the Proposed 

 

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 Exchange Act Rel. No. 77624 (Apr. 14, 2016).
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Plan of Distribution (the “Proposed Plan”) were published.2The Notice advised interested 

persons that they could obtain a copy of the Proposed Plan by printing a copy from the 

Commission’s public website or by submitting a written request to Nancy Chase Burton, Esq.,

United States Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-

5876. All persons who desired to comment on the Proposed Plan could submit their comments, 

in writing, no later than October 11, 2017. Three (3) comments were submitted within the thirty 

(30) day comment period.

After considering the comments to the Proposed Plan, Commission staff, working with 

the Commission-appointed fund administrator, GCG, have added modifications that address the 

comments received (the “Plan”). 

After careful consideration, the Commission concludes that the Plan should be approved.

II.

A. Public Comments on the Proposed Plan

1. Comments from Steven B. Caruso, Maddox Hargett & Caruso, P.C.

Mr. Caruso submitted a letter dated October 3, 2017 (“Caruso Letter”), on behalf of 

unnamed investor clients.3 

A. Objections to Data Used

Mr. Caruso objects to the Proposed Plan’s use of investor information provided solely by 

Respondents. He maintains that there must be a full and fair disclosure of the information 

provided by Respondents to have any possibility of independent verification of the accuracy of 

that data. 

B. Objections to Definitions Used

 

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 Exchange Act Rel. No. 81570 (Sept. 11, 2017).

3 The Caruso Letter contained several comments that do not pertain to the Plan. Only the substantive objections to 

the Plan are outlined herein.
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The Caruso Letter identifies the definition and description of “purported advisory fees” as 

another defect in the Proposed Plan because there is no transparency as to whether the fees 

include placement fees, transfer fees, incentive/performance fees, or other costs such as margin 

loan interest or swap fees that were paid, directly or indirectly, by investors to Respondents for 

each of the targeted funds. 

C. Objections to Total Payments Being Applied at the Fund Level

Mr. Caruso objects to the inclusion of the arbitration awards and settlements, the 

redemptions and the tender offer amounts at the fund level in the definition of Total Payments to 

Investors,

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stating that such inclusion is prejudicial to all of the investors who did not receive or 

accept such payments. Further, he objects to payments being applied at a fund level as opposed 

to an individual level.

D. Objections to Plan of Allocation

Mr. Caruso objects to the Plan of Allocation (Exhibit A to the Proposed Plan), stating that

“thousands of defrauded investors in three of the Respondents’ funds (ASTA/MAT, ASTA/MAT 

2 and ASTA/MAT 3) will not be eligible for any distribution” because the methodology is 

“based on faulty predicate calculations.”

Mr. Caruso’s comments raise issues regarding the aggregated fund-level fee and payment 

data that the Plan was designed to address: preparing an equitable distribution plan based on 

investor net losses without complete investor-level data about fees and payments. Applying an 

equal-recovery-of- losses allocation methodology is appropriate for the nature of the fund level 

payment data that Respondent was able to provide .

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With only fund-level data available for management fees and all categories of payment, 

 

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 All capitalized terms used herein but not defined, shall have the same meanings ascribed to them in the Plan.

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.
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the most equitable, fair and reasonable distribution will be achieved by adopting a methodology 

that attempts to equalize recovery of losses across the nine Potentially Eligible Funds, and then 

allocates the Distribution Fund among the harmed investors in proportion to their investment 

amount within a specific fund.6

Acknowledging the limitations of the lack of comprehensive investor-level information, 

the Commission has considered Mr. Caruso’s first comment, and concludes that it is fair and 

reasonable to retain the proposed distribution methodology, but agrees that a modification to the 

distribution procedure is appropriate. The modification to the Plan appears at ¶¶ 39-41, under the 

designation Investment Verification Process, and at ¶ 42, with related definitional modifications 

at ¶¶ 11, 18, 19, 21, 25, 26, 30, 35, 36, and 37 to address Mr. Caruso’s concern with respect to 

the inability of investors to independently verify the data provided by Respondents, particularly, 

the capital investment data and the identification of every investor in each of the nine funds. The 

addition of the Investment Verification Process will add about 120 days to the timeline for 

distributing funds, but will provide every investor with the opportunity to review and object, if 

necessary, to the capital investment data which is the foundation of the distribution methodology. 

The Commission has considered Mr. Caruso’s second and third comments and concludes 

no modification to the methodology is warranted. In its equal-recovery-of-losses methodology, 

the fees, as presented in the Plan, are management fees, based on assets under management, paid 

to Respondents, at the fund level. The Plan includes every fee amount and every payment 

category reported by Respondents at the fund level. As discussed above, based on available data 

at the individual level, the methodology equalizes the recovery across all nine of the Potentially 

 

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Since there is no established securities market for this hedge-fund trading or any other mandated system for 

reporting this type of data, the Commission staff and GCG had to rely on Respondents’ counsel for producing 

complete information about the capital investments of all investors, including the fees investors paid, and the returns 

on those investments that they received from Respondents. Only fund-level data is available for all categories of 

payment.
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Eligible Funds by using fund-level data. Without an independent source of data and without 

complete payment data from each investor, the Total Payments to Investors must be calculated at 

a fund level; otherwise the fund administrator would be unable to evaluate an investor’s 

submission for completeness and accuracy. However, to improve the transparency of the 

payment data and investor understanding of the categories of payment and their respective 

amounts, Table 3 at pg. 23 of the Plan has been added. The table shows the categories of Total 

Payments to Investors and the amounts for each category.

The Commission has considered Mr. Caruso’s fourth comment and finds that no 

modification to the Plan of Allocation is warranted. As explained in the Plan of Allocation

(Exhibit A to the Plan), if investors in all funds had been compensated equally, through the 

various payment efforts and through the Distribution Fund, all investors would have received 69 

cents on the dollar invested or paid in fees. This Equal Recovery Ratio (0.69) then is compared 

to the recovery ratio from payments calculated for each of the nine funds individually. These 

ratios range from 0.29 to 1.01. See Plan, Exhibit A, Table 1, Column 5. Three of the funds have 

a ratio larger than 0.69; meaning that they already received more compensation from the various 

payment efforts (that is, even before allocating the Distribution Fund) than the Equal Recovery 

Ratio. The Commission concludes it would not be feasible to claw back the “overpayments” to 

those funds’ investors, and that the fairest treatment is to eliminate those three funds 

(ASTA/MAT, ASTA/MAT 2 and ASTA/MAT 3) from the distribution. In the aggregate, 

investors in each of the three eliminated funds have already received a much greater recovery to 

date than investors in the other six funds. And one fund ASTA/MAT, received total payments in 

excess of the investors’ total investment and fees with a return of $1.01 per dollar spent in 

investments and fees. When the three funds are removed from the distribution, the Net Available 
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Distribution Fund is allocated to the remaining six funds in such a way as to equalize the 

recovery per dollar of losses across the six funds. See Plan, Exhibit A at ¶ 3 and at Table 2, 

Column 5. As a result, the harmed investors in each of the six Eligible Funds will be paid a 

distribution payment of $0.57 on each dollar invested. Thus, even after the distribution, the 

investors in each of the three eliminated funds, at the fund level, will still have received a greater 

recovery than the investors in the other six funds.

The Commission’s objective is to distribute Fair Funds and Disgorgement Funds in a fair 

and reasonable manner, taking into account relevant facts and circumstances. See Official 

Committee of Unsecured Creditors of Worldcom, Inc. v. SEC, 467 F.3d 73, 82 (2d Cir. 2006). 

The Commission, like districts courts, may, within their discretion, approve a plan so long as it 

“proposes a fair and reasonable allocation of recovered funds to investors.” See SEC v. E-Smart 

Techs., Inc., 1139 F. Supp. 3d 170,193 (D.D.C. 2015) (emphasis added). Some investors will 

invariably be excluded from a distribution plan. However, so long as the Commission is satisfied 

that “in the aggregate, the plan is equitable and reasonable,” the SEC may engage in the “kind of 

line-drawing [that] inevitably leaves out some potential claimants,” See Worldcom, 467 F.3d at 

83 quoting SEC v. Wang, 944 F.2d 80, 88 (2d Cir. 1991); also see SEC v. CR Intrinsic Investors, 

LLC, 164 F. Supp. 3d 433, 435 (S.D.N.Y. 2016) (“[N]early every plan to distribute funds 

obtained in an [SEC] enforcement action requires choices to be made regarding the allocation of 

funds between and among potential claimants within the parameters of the amounts recovered.”)

The proposed methodology provides for an equitable, fair and reasonable distribution of the 

Distribution Fund.

2. Comment from Robert Pommer, Kirkland & Ellis

Mr. Pommer submitted a comment letter dated October 9, 2017, on behalf of his investor 
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client, Ted Berghorst. His comment pertained to “the Commission may exercise its discretion”

provision in the procedures for a residual distribution, outlined in ¶ 61 of the Proposed Plan (now 

¶ 66 of the Plan). Mr. Pommer argues that the Eligible Investors will not get anywhere near a 

full recovery of their investment losses and thus the Plan should require an additional distribution 

of any residual as a default position, unless the administrative costs of such disbursement exceed 

the amount of the Residual.

After consideration of Mr. Pommer’s comment and taking into consideration that 

Respondents are responsible for bearing the costs and expenses associated with the distribution, 

the Proposed Plan has been modified to state that Commission staff will seek an order for an 

additional distribution of a Residual to investors who cashed their distribution checks or received 

an electronic payment in the initial disbursement of the Distribution Fund, unless, the 

Commission staff determines in its discretion that the administrative costs of such disbursement 

exceed the amount of the Residual. Should the administrative costs of such a distribution exceed 

the amount of the Residual, the Commission staff retains discretion to determine whether such a 

Residual distribution should be implemented. Otherwise, the Residual will be transferred to the 

Treasury after the final accounting is approved by the Commission. See Plan at ¶ 66. 

3. Comment from Investor Marty L. Krueger

Mr. Krueger’s comment focuses on the settlement payments that were negotiated by 

individual investors with the Respondents, but are included in the definition of Total Payments to 

Investors, aggregated at a fund level and attributed to all investors in the relevant Eligible Fund. 

Mr. Krueger suggests that it would be more equitable to treat all investors individually within a 

fund and that settlement information should be available as Respondents would have prepared an 

individual form K-1 for each investor.
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Upon receipt of Mr. Krueger’s comment, GCG did follow-up with Respondents’ counsel 

to obtain any K-1s prepared on behalf of Respondents that were provided to investors. On or 

about January 2, 2018, Respondents’ counsel reported to GCG that no K-1s were found.

Consequently, no changes to the Proposed Plan are recommended with respect to settlement 

payments.

B. Modification and Approval of the Plan

The three comment letters raise some valid arguments in support of modifying certain 

provisions of the Proposed Plan while leaving the equal-recovery-of-losses allocation 

methodology in place. In particular, the concerns regarding the transparency of the data supplied 

by Respondents and the inability of investors to verify the individual investment data merit the 

addition of an Investment Verification Process, and an additional table of data that identifies at a 

fund-level the categories and amounts of payments. Also, the concern about requiring a residual 

distribution merited a change to stronger language that requires staff to seek a disbursement 

order to distribute the Residual, unless the administrative costs of such a distribution exceed the 

amount of the Residual. 

For the reasons stated above, the Commission finds that the Plan with the recommended 

modifications incorporated, as submitted herewith, should be approved.

The foregoing modifications do not affect the Proposed Plan’s equal-recovery-of-losses 

allocation methodology and, as a result, do not substantially modify the Proposed Plan; therefore,

the Commission concludes that an additional notice and comment period is neither necessary nor 

required by the Rules. Under Rule 1104 of the Commission’s Rules, 17 C.F.R. § 201.1104, “[i]n 

the discretion of the Commission, a proposed plan that is substantially modified prior to adoption 

may be republished for an additional comment period. . . .” (emphasis added). In determining 
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whether a plan is substantially modified, the Commission considers, among other things, whether 

modifications revise the distribution plan’s methodology, in particular whether such 

modifications could have a negative effect on the proposed eligible recipients, and whether the 

modifications affect the group of persons eligible to participate in a plan. In this case, there is no 

“substantial” modification because the Plan retains the proposed distribution methodology and 

both the distribution payment amounts and the ultimate recipients remain unaffected. As a 

result, the Commission exercises its discretion to not republish the Plan for additional comment.

III.

Accordingly, IT IS HEREBY ORDERED that, pursuant to Rule 1104 of the 

Commission’s Rules, 17 C.F.R. § 201.1104, the Plan for this matter is approved, and it shall be 

posted simultaneously with this Order on the Commission’s website at www.sec.gov. 

By the Commission.

Brent J. Fields 

Secretary