According to a law firm press release, a class action has been commenced on behalf of all persons or entities who have tendered or are being asked to tender their shares of Falcon Strategies Two LLC, a fund affiliated with defendant Citigroup, Inc. (“Citigroup”) (NYSE:C), in connection with a tender and exchange offer (the “Tender Offer”), on the basis of a Confidential Tender and Exchange Offer Memorandum, dated May 8, 2008 (the “Tender Memorandum”), that contains materially misleading statements and omissions. The Complaint alleges claims under Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Delaware law.
Defendant Falcon is a Delaware limited liability company that was purportedly formed on April 27, 2004 to serve as a multi-strategy fixed income alternative seeking to provide investors with absolute returns, current income and portfolio diversification. The Company, which commenced operations on October 29, 2004, claimed to invest in a select combination of fixed income strategies to achieve attractive risk-adjusted, and in some cases “absolute,” returns.
The Complaint alleges that, unbeknownst to investors, Falcon’s investment approach was not conservative but was instead highly leveraged on the condition of the credit markets and liquidity in the bond markets. In this regard, Falcon’s investments were more akin to derivatives. According to the Complaint, in fact, Falcon employed municipal bond arbitrage, carried commercial debt obligations and held asset-backed mortgage instruments that were intrinsically tied to the condition of the credit and bond markets. Moreover, Falcon heavily invested in funds under the Citigroup umbrella that employed these investment strategies. When these markets failed, the underlying investments declined in value.
In connection with the filing of the Complaint, Plaintiff also filed a motion for a preliminary injunction seeking to enjoin the Tender Offer until Falcon and other named defendants (collectively, “Defendants”) correct the allegedly false and misleading Tender Memorandum to enable investors to make an informed decision about whether to tender their shares. In particular, Plaintiff alleges that the Tender Memorandum is materially false and misleading because it fails to disclose the following material facts: the present and potential value of the Company’s assets and shares, as well as the makeup of those assets and the Company’s individual investments; the nature of any claims that Defendants are requiring investors to release as a condition to the acceptance of any tendered shares; the nature, scope and subject matter of the U.S. regulatory inquiry to which Citigroup is responding as well as any related civil litigation; and the events leading up to the investors’ massive losses, the Tender Offer and the wind-up and liquidation of the Company’s assets and operations. The Court has not yet set a date for Plaintiff’s preliminary injunction motion and there can be no assurance that the Court will set a date for the injunction hearing. If the Tender Offer is not enjoined by the Court (or voluntarily extended by Defendants), it will expire according to its terms on June 30, 2008.
On July 22, 2008, the plaintiff voluntarily dismissed the complaint without prejudice.