Emails and documents obtained by Fox Business Network reveal that investors couldn't have known the risks they were taking when investing in Citigroup's risky, speculative investments because the individuals peddling these products didn't even understand them.

Private bankers and financial advisers who invested clients' money in the Falcon and ASTA/MAT funds believed that they were safe investments, according to various correspondence. It became clear that they were drastically misinformed after customers lost about $2 billion in what turned out to be speculative investments on mostly muni bonds.

The issue is that clients got duped, and we as FAs [financial advisers] got duped on what we were getting, Fox Business Network quotes one email as saying.

Fox Business Network also notes the documents show that Citi employees repeatedly told Citi’s top executives, including new chief executive Vikram Pandit and Sallie Krawcheck, about problems even while the funds were melting down.

Perhaps even more perilous for Citigroup is that the correspondence shows that after individuals who sold the investments discovered what the products were about they expressed regret that the funds were ever sold.

A Citigroup spokesman told Fox Business Network in a statement that Citi acted appropriately at all times in connection with these investments. “Our disclosures were accurate and complete and the investors who purchased these investments were highly sophisticated and knew of the risks involved.”

That may be a hard line to sell given that Citigroup is already in the hot seat for peddling toxic debt via a product known as a CDO, or collateralized debt obligation, which was linked to U.S. mortgages and which also went bust.

The SEC filed a lawsuit against Citigroup for misleading customers in its handling of the CDO investments, which agency says defaulted within months, leaving investors with losses while Citigroup made $160 million in fees and trading profits.

According to the SEC Citigroup exercised significant influence over the selection of assets in the CDO portfolio. Then, the bank took a short position against those same assets, betting that they would fail. None of this was disclosed to clients.

Citigroup tried to settle without admission of guilt for $285 million but the effort was blocked by Federal Judge Jed Rakoff.

“If the allegations are true, the settlement lets Citi get away with cheating customers in exchange for a slap on the wrist, while leaving investors “short-changed,” the New York Post quoted Rakoff as saying.

In the current case, a federal inquiry is still under way and investor lawsuits are pending.