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Citigroup Global Markets Screwed Investors Up

Author: Ken Poon

2020-04-14 15:32

Citigroup Global Markets (CGM) announced to accelerate the Velocity 3x Long Oil ETN UWT on March 19, making thousands of investors suffering from unrecoverable losses. Though CGM has the right to accelerate, it was done in a highly unethical and unjustified manner.

There are a number of areas CGM screwed investors up:

1.      No proper notice or warning was given to various brokerages and investors prior to and after the announcement

The announcement came in as one of the messages distributed out by brokerages without drawing ETN holders’ proper attention and alert to mitigate the losses immediately. The ETN remained trading business as usual even after the announcement, UWT ETN holders were kept in the dark shall they not subscript to the distribution of general announcements from the brokerage houses.


2.      Price manipulation during the period from the closing announcement to ETN trading closure.

On March 19 and then again on March 22 CGM announced to accelerate UWT stating that UWT ETN holders would receive payment for each ETN based on the closing indicative value (CIV) of UWT for the last 5 trading days ending March 31. According to CGM's press releases the UWT CIV was to be calculated as follows: Citigroup would continue to track the related S&P Index between March 25 and March 31 (what it calls the Optional Acceleration Valuation Period or OAVP) adjusting the UWT price each day with the March 31 price being the final CIV. In CGM's March 22 press release they went to warn that anyone purchasing UWT ETNs subsequent to March 31 at a higher rate than the CIV would be subject to losses implying that the ETN price will continue to track the related index.

However, CGM failed to honor their price mechanism and its obligations and adjusted the price of the UWT in a manner in which to benefit themselves and at the expense of the public ETN holders with a few examples given below:

a)      For several days prior to their first press release and prior to the OAVP and “without notice” to the public ETN holders, CGM failed to adjust the UWT price to correlate with the related index except when the index went down. For instance, on March 23, the index rose by 24%, UWT only increased by 22% when it should have increased by 72% (or 3X).

b)     During the OAVP or between March 25 and 31, when the related S&P index decreased, the price of UWT decreased. However, when the related index went up, either the price of UWT decreased or did not increase by the 3X it was supposed to according to the mechanism. For instance, on March 31 and during the OAVP, the index rose by 2% and therefore UWT should have risen by 6% but instead, UWT closed down 4%.

c)      Subsequent to the OAVP and contrary to what was implied in CGM's March 22 press release, they continued with its practice of not adjusting the price of UWT to correlate with the index even though UWT continued to be bought and sold on a public exchange. For instance, on April 2, the index rose by 25% but UWT continued to trade but UWT decreased by 2% when it should have risen by 75% (or 3X).

3.      Mitigation of CGM's own losses at the expense of the public ETN holders.

The fund associated with UWT had $137M in assets/cash – some public websites report as much as $480M in assets. According to the prospectus UWT had 306M ETNs outstanding held by the public. Therefore each ETN holder should have been paid $0.45 to $1.57 per ETN, not $0.1647. It is apparent that of the $137M (or higher) in the associated fund, CGM only paid the public ETN holders $50M and kept the remaining $87M (or more) for themselves.


4.      Abusing their right to accelerate this ETN

According to the related (UWT) prospectus, a “trigger event” would only occur a when the net indicative value of the fund fell 75% (index 25%) in one day. Although, this decrease did occur during intra-day trading on March 16 it had never occurred at the daily adjusted close price which was the condition of this poison pill. Therefore there shouldn’t be a decision of acceleration at the first place.

And notably, CGM didn't exercise its poison pill on March 16 when it was still trading in the neighborhood of $1. It did so on March 22 and when UWT was trading at below $0.20 when most ETN holders suffered the most lost.


5.      Lack of proper warning and restrictive facilities to ordinary retail investors

Although their prospectus indicated this ETN is meant for sophisticated investors, it is listed in all brokerages just as a normal product together with other stocks and ETFs without proper warning and restrictive access to ordinary investors. Surely investors shall be responsible for their investments and risks, but the product issuer itself shall make equate efforts in minimizing investors’ exposures.

Investors around the world had suffered huge losses due to CGM's wrongdoings and misconduct. Until justice is returned this fight will go on. We urge more small investors who were abused under similar circumstances join forces together and take actions.

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