Citigroup Inc has been sending hedge fund firms letters informing them that it cannot sell investments in hedge funds and private-equity funds to clients after a deal with the Securities and Exchange Commission, the Wall Street Journal reported.

The bank this month reached a $285 million fraud settlement with the regulator over a complaint concerning a 2007 sale of mortgage-linked securities debt that caused more than $700 million of investor losses.

Citigroup said in the letter to hedge fund firms that it was working with the SEC to resolve the issue, the newspaper reported. (http://on.wsj.com/1p0VwSD)

However, the bank is allowed to sell private investments to large institutions, the Journal said.

The restrictions are due to a "bad actor" rule the SEC adopted in July last year, which bars companies or individuals with a "criminal conviction, regulatory or court order or other disqualifying event" that occurred after September 2013 from participating in private offerings. (http://1.usa.gov/1voicBU)

Obtaining a waiver may require more review time following last year's rule change, the Journal said, citing a person close to the matter.

Citigroup spokeswoman Danielle Romero-Apsilos said the company declined to comment.