Huge Losses with Citigroup's Hedge Funds

The huge losses in Citigroup's Falcon Hedge Funds is causing a lot of pain for investors who didn't even know they were making a risky bet. Citi's Smith Barney advisers told investors that the Falcon Hedge Fund was solid and "bullet-proof" when it wasn't; in reality, the Falcon held a lot of risky mortgage-back securities. Worse, as Falcon deteriorated, Smith Barney advisers were still telling investors not to worry about the fund. Most people lost their investments by the time advisers started to tell the truth. If you lost money in Citigroup's Falcon Hedge Funds, you should probably contact a lawyer right away to discuss your legal options.

An unnamed conservative investor from La Habra, California lost hundreds of thousands of dollars with the Falcon fund. Smith Barney told this investor that the Falcon Hedge Fund was as bullet-proof as the municipal bonds he usually invested in and Falcon was only being offered to qualified investors who had three to five million dollars of investments with Smith Barney. Smith Barney demanded an immediate response from him and sweetened the pot by telling him the fund would give him a seven percent return, paid twice a year.

So, in October of last year, this investor gave $500,000 to Smith Barney for the Falcon fund and in less than 30 days, Falcon began to hemorrhage money. This investor demanded an explanation from Smith Barney right away and was still told the Falcon was bullet-proof and only a very small percentage of the fund was in mortgage-backed securities.

Still the fund continued to lose money and Smith Barney and Citigroup started to have conference calls that investors could call into and listen, and in those calls, they were still saying the Falcon would recover but it would take a little longer than three years to recoup the fund.

Four months after he bought into Falcon, our unnamed investor lost more than half of this initial investment. Finally, Smith Barney told him that the Falcon would never recover because there was too much invested in mortgage-backed securities and investors should not expect any dividends on the fund. Plus, investors who have had the fund for longer than three years should be able to sell their shares but Smith Barney suspended all sales and dividends.

This investor was repeatedly told that the Falcon Hedge fund was safe and bullet-proof but in a span of nine months, his initial $500,000 investment is down to $135,775. Obviously, what Smith Barney promised was very different from reality.