A Financial Industry Regulatory Authority arbitration panel awarded three people more than $1.7 million in connection with their investment in a Citigroup Inc. hedge fund that had its value devastated by the credit crunch.

The three had invested in MAT Five LLC, which had a $500,000 minimum investment and allegedly was marketed to fixed-income investors as being designed to "produce stable cash flows in a tax-advantaged arbitrage opportunity." The decision was announced Wednesday.

Citi has defended its handling of the fund, saying it was offered only to clients with large, diversified portfolios. But law firms representing the trio in the case said Wednesday that MAT was a risky investment that subjected investors to huge losses. They further alleged that when confronted with evidence that Citi misrepresented MAT's risk level to their brokers, who passed the misleading information on to their clients, a high-ranking Citi official said it would be "unwise" for customers of the firm to rely on what their broker told them.

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