Skip to main content

Tender Offer For Citigroup Falcon Hedge Fund to Move Forth

One of Citigroup’s much-beleaguered Falcon Strategies hedge funds has been given the green light to move forth with a tender offer initiated in May as part of its wind down.

As reported June 17 on Bloomberg.com, a New York federal judge rejected a request by investors to halt the tender offer of the Falcon Strategies Two LLC fund. In a proposed class-action suit filed May 20, investors – who were not asking for any damages – claimed the offering memorandum omitted important information and details regarding future legal claims, the value of their stakes in the fund and the shares’ current net asset value.

In the fourth quarter of 2007, Citigroup’s Falcon Strategies Two fund fell almost 53 percent in value, ultimately plummeting nearly 80 percent overall. The losses were largely attributed to the fund betting on mortgage-backed and preferred securities, as well as making trades based on the relative values of municipal bonds and U.S. Treasuries.

By the end of 2007, almost 99 percent of the fund’s assets were invested in 11 Citigroup-affiliated funds engaged in the risky strategies, according to the Bloomberg article. Since March, Citigroup has been in the process of liquidating the Falcon Strategies Two fund, after it suspended the fund’s redemptions and distributions. In May, Citigroup revealed that the U.S. Securities and Exchange Commission (SEC) had requested records related to the bank’s hedge funds but did not identify the specific funds.

The Falcon fund initiated its tender offer on May 8, with a scheduled expiration date of June 30. According to the offering documents, the offer would pay 45 cents a share. The shares, valued at $1 each when the fund began in 2004, now have a net asset value of 19 cents to 21 cents, according to court papers. The turn of events surrounding Citigroup’s Falcon Strategies hedge fund has no doubt left investors feeling duped and cheated. Unknown to them, the Falcon Strategies funds were not, as promised, the safe alternatives to money market investments. Instead, investors found themselves in extremely high-risk investment strategies – so much so that the funds ultimately lost the majority of their value.