The U.S. securities regulator has probed certain Citigroup Inc debt funds to assess whether the bank made adequate disclosure to investors about the funds' risk levels, the Wall Street Journal said, citing people familiar with the matter.

The Securities and Exchange Commission (SEC) had also subpoenaed the bank's former brokers for testimony, the Journal said.

Citigroup's debt funds, which are under the SEC's scanner, had used borrowed money to invest in municipal bonds and mortgage debt, the Journal said.

After the mortgage market imploded during the credit crisis, the funds' value fell about 77 percent to reach a low in March 2008, the paper said.

Following internal discussions, Citigroup had offered share buybacks that reduced investor losses to about 61 percent, according to the Journal.

Three California-based brokers, who worked for the then Citigroup unit Smith Barney, concluded the bank did not adequately disclose the funds' risks and had also mismanaged them, the newspaper said, citing people familiar with the regulatory probe.

The brokers, who resigned in 2008 in a dispute over Citigroup's handling of the funds, had received subpoenas from the SEC, the paper said.

They spoke to the SEC in 2009 and again this past summer, the sources told the paper.

The SEC declined to comment to the Journal. Citigroup declined to comment in detail, citing the regulatory probe, the paper said. Citi, however, denied misleading investors, saying its disclosure was adequate, the WSJ reported.

The SEC and Citi could not immediately be reached for comment by Reuters outside regular U.S. business hours.

Citi had maintained that the investors were notified the funds were more volatile than the stock market and that they could lose their entire investment, the Journal said.