Hedge funds sometimes get a bad rap in the U.S., but in Norway they are taking an epic beating following reports that four public municipalities have suffered huge losses because of hedge fund investments. The scandal involves a credit-focused Citigroup hedge fund marketed by Terra Gruppen and sold to local townships in the Scandinavian country. 

The hedge fund, Citigroup Municipal Investors, required municipalities to assume debt which was then secured by future energy revenues. However, the subprime credit crisis in the U.S. hit the fund hard, and the municipalities, four of which invested a total of $739 million, were forced to place more money into the funds or face losing their investments. According to reports, one small town couldn't even make payroll for December and was forced to cut child care and elder care programs.

"It’s not legal to market hedge funds in Norway," Eystein Kleven, a representative of Norway’s regulatory agency Kredittilsynet, told newspaper Aftenposten. 

Politicians are taking the brunt of the blame from the public, though they are scrambling to place fault on Terra, claiming that they were tricked by the firm and that the investments Terra sold were illegal.

The Norwegian government has launched an official probe into the scandal, and politicians are demanding that the municipalities withdraw all hedge fund allocations and that Terra compensate towns for any losses suffered.
 
Citigroup officials are reportedly in Oslo today meeting with executives from Terra.