Citigroup Underestimates Risk to its Investors
Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A. is accepting cases on behalf of investors who lost money investing in hedge funds managed by Citigroup Alternative Investments (“CAI”), including the MAT Five or ASTA/MAT family of hedge funds (“MAT”) and the Falcon family of hedge funds (“Falcon”). Investors in the ASTA/MAT funds have until December 5, 2008 to opt out of the pending class action settlement. Levin, Papantonio, Thomas, Mitchel, Rafferty & Proctor, P.A. does not believe the settlement offer is sufficient considering the fund was sold as a low risk, fixed income investment.
The MAT Five or ASTA/MAT hedge funds and the Falcon hedge funds both specialize in highly leveraged financial activities. The MAT Five or ASTA/MAT fund practices municipal arbitrage, where fund managers hedge tax-free municipal bonds against riskier taxable corporate bonds. Citigroup and the fund itself claimed that this strategy creates a relatively cheap municipal bond with an appealing yield. The Falcon invested in various debt instruments, including mortgage-backed securities and bank loans, as well as municipal bonds.
Citigroup advertised these funds as alternatives to fixed income but volatility in the credit market proved that the hedge funds were far less reliable than traditional fixed income. Falcon, which was formed in 2004 and purported to provide current income and portfolio diversification, has fallen to about 20 cents a share from its $1 opening. The MAT Five fund was marketed in December 2006 as a fund investing in high grade fixed income and utilizing hedging strategies to provide tax advantaged returns. Reaz Islam managed both funds before his departure from Citigroup in May of 2008. The funds have lost over 75% of their value since their inception.
Citigroup has offered to redeem shares of the Falcon and the MAT Five funds at values considerably lower than the average investor purchase. If your financial advisor or money manager recommended Citigroup hedge funds and failed to disclose the significant risks, you may be entitled to recover damages. Similarly, if you relied on marketing material and/or prospectuses provided by Citigroup Alternative Investments or Reaz Islam in your decision to purchase Citigroup hedge funds, you may have a claim. Please contact Peter Mougey at Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A. so we can assist you with the analysis of your losses.
July 23, 2008
Investors dropped a class action suit against Citigroup’s Falcon Strategies hedge fund that was seeking information on Citigroup’s offer to redeem Falcon shares. A U.S. District Judge rejected the investors’ bid to halt the investment bank’s repurchase offering. The Falcon fund has lost 80 percent of its value since its inception and investors who purchased shares at a $1 initial value have been offered redemptions at 45 cents per share. Those involved in the lawsuit sought more information on the redemption offer, claiming they could not value their holdings due to misleading and omitted information from Citigroup Alternative Investments in the offering memorandum. Despite the lawsuit, investors are still unable to determine the actual value of the shares they hold.
Citigroup Hedge Fund Manager Departs
May 21, 2008
Reaz Islam, a twelve year veteran of Citigroup, and the manager of the Falcon Hedge Funds, is leaving the firm. Citigroup did not give a reason, but undoubtedly the massive drops in the value of the Falcon and MAT Five Hedge Funds managed by Citigroup Alternative Investments spurned Mr. Islam’s departure. The Falcon funds have dropped in value by more than 75 percent.
Citigroup recently began marketing its hedge funds to individual investors advocating the funds’ stability and liquidity. Unfortunately, both the MAT Five and Falcon were highly leveraged funds with heavy concentrations in residential mortgages and other debt instruments. When subprime securities began failing, both funds’ value dropped dramatically, and Citigroup has since offered to bail investors out at prices considerably less than they paid.