SEC Needs to Step Up on This Citi Mess

Down 75? Or more?

Those are results? For retail investors?

I am talking about the travesty of performance that Smith Barney had in ASTA/MAT, the funds that The Wall Street Journal reports on this morning. That's not a beating. That's an annihilation.

I want to know more about these funds. First, the leverage must have been huge here. Yet it was offered to retail investors? Did anyone understand the power of leverage?

Second, they were in-house. This is the biggest eyebrow-raiser. In the last few months, I have heard horror stories of big brokerage houses stuffing their own in-house hedge funds with the worst of their paper. Typically they didn't sell the hedge funds internally, because that could come back to haunt you. We now know that's happening with Citigroup's (C - commentary - Cramer's Take) "make good" philosophy. Hush money's more like it.

But I really want to see how much of the bad paper -- and it must have been really bad paper -- came from Citigroup entities and Citigroup issuance. I also want to see the trading runs. Did someone at Citigroup cherry-pick and give the worst paper to these hapless souls while saving the best for other clients? Is it right that Citigroup is basically offering a money-back guarantee that comes right out of the hides of current shareholders in the equity? Is it robbing Peter to pay Paul?

This is a moment when the SEC has to take a hard look at the way a fund is run, a hard look at suitability, and a hard look at Glass-Steagall's old safety net, which prevented such actions.

I know no one cares about that law anymore, and the complacency around its obviously wrong-headed scrapping keeps the issue off the radar screen. But if Citigroup's traders are found to have dumped the worst paper into the funds, this is something the SEC can bring enforcement actions against and remove those who did it from the business.

This stuff has to stop.

Not just another black eye for Citigroup. A knockout punch to the system.

Random musings: I didn't get any emails at all from people who want their charities' out-loud auctions (the kind with paddles) to be featured on MainStreet. Please tell friends about this initiative.

At the time of publication, Cramer had no positions in the stocks mentioned.

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