(Bloomberg) — Citigroup Inc. agreed to pay almost $180 million to settle a U.S. regulator's allegations that it defrauded clients of two failed hedge funds by telling them the investments were low-risk.

Citigroup units made false and misleading statements to investors about the funds, which raised almost $3 billion from 2002 to 2007, the Securities and Exchange Commission said in a statement Monday. Before the funds collapsed in 2008, Citigroup had described them as "safe" and "bond substitutes," the SEC said.

"Advisers at these Citigroup affiliates were supposed to be looking out for investors' best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster," Andrew Ceresney, director of the SEC's enforcement division, said in the statement.

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The funds sought to exploit differences between yields on U.S. government debt and municipal bonds and used borrowed money to amplify those bets. The New York-based bank pushed clients into the funds even into the second half of 2007 when the funds began experiencing margin calls and liquidity problems, according to the SEC.

In settling the matter, Citigroup neither admitted nor denied the SEC's allegations.

"We are pleased to have resolved this matter," Citigroup spokeswoman Danielle Romero-Apsilos said in an e-mailed statement.

–With assistance from Dakin Campbell in New York.

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