Hedge fund Falcon Strategies Two B LLC, is suing a business unit of Citigroup, accusing the financial giant of failing to disclose a change in risk, causing the West Palm Beach hedge fund to loose more than 40% of its value.
The hedge fund's law firm filed the suit in the U.S. District Court in Southern Florida on behalf of all purchasers of the hedge fund between Sept. 30, 2005 and Jan. 8, 2008. It is seeking class-action status and compensation and punitive damages.
The suit alleges Citigroup Alternative Investment LLC marketed the fund as low-risk and low-volatility, and then defrauded investors by failing to disclose its change to a far riskier investment strategy. The suit further alleges that the fund's management did so to increase income from its "exorbitant fees."
According to the suit, S&P had assigned the fund a S2 volatility rating. Ratings are given on a scale from S1 to S6, with S1 representing the lowest risk. On Jan. 8 S&P changed the rating to S5. The suit claims management had switched to riskier instruments without informing the investors.
The 18-page, four-count suit, accuses the defendants of: fraud, violations of the Florida Blue Sky Law, negligent misrepresentation and violation of the 1933 Securities Act.
Alex Akesson
Editor for HedgeCo.Net
Email: alex@hedgeco.net
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