When it comes to its hedge funds, no news is good news for Citigroup. Unfortunately for the financial giant, today, there is news.

An investor in one of Citi’s MAT funds has sued the firm, alleging it lied about the nature of the fund when marketing it. The suit, filed yesterday in Manhattan federal court, seeks class-action status.

The Marie Raymond Revocable Trust accuses Citi of promising that MAT Five would “produce stable cash flows in a tax-advantaged arbitrage opportunity” by investing in high-quality, tax-exempt municipal bonds. But instead of receiving “a 7% to 8% yield, income tax free,” the lawsuit alleges that investors “have suffered the cessation of distributions and extreme loss in value of the shares.”

The suit alleges that marketing documents for MAT Five “were false and misleading in that the strategy to be employed would not protect investors.” Some hedge funds in the ASTA/MAT family have lost more than 90% of their value due to the credit crisis.

In March, Citi sought to prop up the ASTA/MAT funds with $1 billion in equity. Last month, the firm offered to cover some of the losses in the funds, provided investors agreed not to sue.