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Citigroup Alternative Investments LLC : Falcon Strategies Two B LLC Hedge Fund Summary: A Notice of Voluntary Dismissal without Prejudice was entered on May 12, 2008 by the plaintiff.
According to the complaint, on September 30, 2005, Falcon Strategies Two B, LLC, (hereinafter referred to as "Falcon") a Delaware limited liability company commenced operations. Shortly thereafter, Falcon entered into an investment management agreement with Citigroup Alternative Investments, LLC (hereinafter referred to as "CAI") to provide investment management services for the Falcon Fund. CAI is a subsidiary of Citigroup, Inc. and is registered by the Securities and Exchange Commission as an investment advisor. Following the execution of the management agreement with CAI, Citigroup through its employees, agents, and other personnel began actively marketing shares of Falcon Strategies Two B LLC to its clients. This included marketing shares through Smith Barney, a subsidiary of Citigroup. The Defendants actively marketed the Fund as a multi strategy fixed income alternative that promised to provide investors with absolute returns, current income and portfolio diversification. The Fund's philosophy was advertised as utilizing complex arbitrage and hedge strategies that would severely limit risk and generate income for the investor. All of the Defendants understood this was the stated goal and purpose of the Falcon Fund. As a result, shares in Falcon Fund were actively marketed by the investment advisors of the Defendants in concert with one another to induce investors to purchase shares of the fund. The Defendants induced investors by promising an absolute return and an alpha strategy that would provide attractive risk adjusted returns in excess of fixed income. The subscription agreement, provided to each investor, outlined a program that included: (1) A target return of 7% to 10% absolute return per annum over a five year investment horizon and (2) a target volatility of 5% over a five year investment horizon. However, at all times, Defendants knew and were aware that investment decisions had been made and actions taken by the Fund manager, that created large volatility and risk for the investors. Defendants undertook leveraged fixed income strategies that were far from conservative and were extremely risky which resulted in substantial losses of principle for the investors. During CAI's management of the fund, at no time were the high risk investment strategies utilized by the fund manager disclosed to the investors, including the Plaintiff. In fact, Standard and Poor's had assigned the Fund an S2 volatility rating given its belief that Falcon maintained a low to moderate sensitivity to change in market conditions given its stated investment strategy. An S2 rating is defined by Standard and Poor's as equivalent to "a portfolio comprised of government securities maturing in 3 - 7 years." However, due to the investment/management decisions of the Defendants, Standard and Poor's changed their rating of the Fund to an S5 on January 8, 2008. A Standard and Poor's S5 rating indicate the Fund "may be exposed to a variety of significant risk, including high concentration risks, high leverage in investments in structured and/or liquid securities." This is a much different product than what was purchased by the Plaintiff, and others similarly situated who purchased their funds prior to January 8, 2008. At all times, the Defendants were aware and knew high risk investment and management strategies were being undertaken managing the Fund, but failed to disclose those investment strategies to the existing investors and continued to market the fund as a low risk investment tool to investors. These were material misrepresentations made to the investing public and the Defendants made these representations with scienter and knowledge that the representations were false. Defendant's motive for undertaking high risk investment strategies with the Fund was the generation of exorbitant fees which were tied to total fund assets. Specifically, all Plaintiffs were charged with a 2 1/2% management fee regardless of performance. However, in addition to the 2 1/2%, the Fund also allowed for an incentive allocation which provided the Defendants, including CIA, an additional fee based on performance. Therefore, the more money the manager earned for the Fund, the higher their compensation. This created an incentive for CAI and the other Defendants to take greater risk with the Fund's assets to try and generate a greater return.
INDUSTRY CLASSIFICATION:
SIC Code:
Sector: Financial
Industry: Investment Services
| COMPANY/ISSUER NAME: | Citigroup Alternative Investments LLC |
| COMPANY/ISSUER TICKER: | |
| COMPANY WEBSITE: | https://www.citigroupai.com/ |
| FIRST IDENTIFIED COMPLAINT IN THE DATABASE | |||||||||||||||||
| A. Robert Zeff TTEE FBO A. Robert Zeff Revocable Living Trust U/A/D 10- 15-97, et al. v. Citigroup Alternative Investments LLC, et al. | |||||||||||||||||
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| DOCUMENTS FOR THE FIRST IDENTIFIED COMPLAINT | |||
| Complaint | |||
| Type: Complaint | Date on the document: 4/4/2008 | ||
| Voluntary Dismissal | |||
| Type: Notice | Date on the document: 5/12/2008 | ||
| US District Court Civil Docket | |||
| Type: Docket | Date on the document: 5/14/2008 | ||
| OTHER DOCUMENTS | |||
| Case Name and/or Number: | |||
| Type: | Date on the document: | ||
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