The SEC Investigates Citi For Misleading Investors On "Falcon Fund"


The SEC is investigating whether Citigroup misled investors in a debt fund called the Falcon Fund, says the WSJ.The Falcon Fund was risky; Citi’s private bank rated it at a risk level of 4 on a 1 to 5 scale, with 5 being the highest risk.

Yet some of Citi’s marketing documents said it was “an attractive alternative” to a bond index, according to a Wall Street Journal article. Citi investors later lost 80% to 97% of their investment, from May 2007 to March 2008.

Citi denies misleading investors, saying its disclosure was adequate and that investors were told they could lose their entire investment, according to the Wall Street Journal, but the bank has already ceded part way.

They paid $250 million to cover one-eighth of their clients’ losses.

And Sallie Krawcheck, who was the head of Citigroup’s wealth-management division at the time, wanted to pay more, say the Wall Street Journal’s sources.

Back when the investors first lost money in Falcon Fund, Sallie Krawcheck told brokers that the bank should cover part of the losses because, she said, the funds were less stable than billed.

One investor, Simon Johnston, wants pay back. He responded to an offer from Citigroup to buy back his personal investment at a 72% loss by transmitting a message from his clients:

“1. Go f— yourself. 2. We’ll see you in court. 3. You’ll look good in stripes.”

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