As financial markets boomed in recent years, some Wall Street players began selling insurance against things going wrong, in what looked like prudence. It wasn't.

In separate lawsuits filed in a New York federal court, a $58m-asset hedge fund alleges that Citigroup Inc. and Wachovia Corp., respectively, improperly required the fund to pay out more money from insurance derivatives contracts known as "credit default swaps" amid a steep decline in the value of mortgage-backed bonds.