Citigroup has created products specifically for the Australian Foundation Investment Company scam, designing the products to the specifications of the criminals, fully aware that the products were to be used for securities fraud. Citigroup provides leverage for the scam, further deferring liabilities of these already catastrophically underfunded schemes, increasing losses to granny investors that already run into the billions. Citigroup has created a series of warrants for these companies, while being aware of their deliberate overvaluations, accounting fraud and ramped share prices. These warrants are not widely advertised by Citigroup, which understandably does not flaunt its involvement in multibillion dollar asset-backed securities fraud.
Used by the criminals and pushed by associated advisors, these products are often sold on the basis of ongoing tax minimization.
http://www.asx.com.au/asx/markets/priceLookup.do?by=asxCodes&asxCodes=afijoh
http://www.asx.com.au/asx/markets/priceLookup.do?by=asxCodes&asxCodes=afiszb
http://www.asx.com.au/asx/markets/priceLookup.do?by=asxCodes&asxCodes=djwjoh
http://www.asx.com.au/asx/markets/priceLookup.do?by=asxCodes&asxCodes=mltjoh
AFI and its associate criminal listed investment companies have fraudulently inflated their NTAs with ramped assets, crossholdings and accounting fraud doublecounting investments. They have then manipulated their share prices to up to 30% over even these fraudulent NTAs, issuing millions of shares to granny investors at the purposefully inflated prices. Pension savers think that they can cash out at the prevalent 'market' price at any time, while the scam in aggregate actually is underfunded by billions of dollars, granny investor funds that are lost forever, something which will be discovered the moment people try to cash out. The criminal LICs rationalize this by predicting eternal fund inflows, in which scenario their schemes actually do work, like any ponzi.
Citigroup has helped with this fraud of asset-backed securities, knowing the securities were fraudulent, but still designing and selling derivatives based on them, adding a derivatives bubble to an existing ponzi. Citigroup obviously is entirely fearless of the prospect of multibillion class action lawsuits when grannies find a quarter of their funds in these schemes were missing the entire time. As a mathematical fact, the AFI/DJW/MLT scam depends on continued net fund inflows, from granny suckers or debt, otherwise the price could not be held manipulated 30% above NTA. The question is how far this goes up Citigroup management. Is it only Citigroup Australia which is complicit, or is the head office aware of this securities fraud?
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ReplyDeleteFrom my quick read of the Product Disclosure Statement (http://www.asx.com.au/PDF/12-068CTW.pdf), aren't these MINI products effectively just a leveraged investment into an underlying security with the real uncertainty being the % gearing applied on the product (which the PDS notes can be from 30% - 90% (I assume that the flexibility for a variable gearing has been built into the product following the fact that the equity investment will fluctuate in value as the underlying moves and the debt quantum remains fixed)) and the excessive fees built into the elements of the transaction (drawdown, rollover etc.)? The final installment payable is simply, as far as I can read, a repayment of the principal borrowed to make a leveraged investment in an equity.
ReplyDeleteThis product seems to be for the 'investor' who cannot leverage their capital on their own behalf. The real risks of the product revolves around the cost of debt and liquidity - given that the PDS explicitly outlines that interest rates can be charged at the discretion of Citi with an additional undisclosed margin; the fees to transact and borrow seem excessive; the quantum of debt is not necessarily defined; and there is liquidity risk on the actual MINI, such that an investor may not be able to exit their investment at intrinsic value relative to the price of the underlying. Otherwise the risks are as per any investment in a listed security.
The upside for an investor could be that they could achieve a leveraged return on an equity investment and thus an enhanced return. However, I fail to understand why anyone would engage in a financial relationship without any control over financial fees and interest rates charged.
Ph Capital,
DeleteThank you for your comment and analysis. To clarify, I am not criticizing warrants as such, or their use by retail investors, although as you point out any leveraged strategy will increase risk to the same extent as expected returns.
The Citi products described in this post are not warrants on listed stocks with market prices. The prices of AFI, DJW, MLT and MIR are manipulated, purposefully managed to trade at far above purported asset backing. Citi knows these asset-backed securites are inflated scams, and may even be directly involved in moving the prices. The closest analogy would be if Bernie Madoff had managed to get accomplices at Citi to launch tailored derivatives on his scams while aware of their fraudulence.
AFI, DJW, MLT and MIR are purposefully underfunded fraud schemes. As an analogy, imagine you run an ETF. One day you realize that instead of holding assets backing your unit issues to 100%, it would be much more profitable to only hold a 75% asset-backing on units you issue. This would be no problem, as long as there aren't significant investor outflows. So you start a fraud scheme with your bankers. But now you absolutely require an ongoing stream of investors, so you ask your accomplices to create various financial products to push money into the insolvent scheme.
Citi is well aware that AFI has a manipulated price and constitutes a catastrophically underfunded fraud of asset-backed securities. It helped criminals tailor products for this securities fraud.