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 U.S. 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.

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.

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.