Hedge Fund Scandal Rocks Norway

Nov 26 2007 | 11:08am ET

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.


In Depth

GSAM’s Papagiannis on Liquid Alternatives

May 25 2016 | 5:07pm ET

The popularity of liquid alternatives strategies has blossomed in recent years,...

Lifestyle

From Modern Trader: Stephen Curry is a Black Swan

May 18 2016 | 7:43pm ET

What do the rise of the Internet, the sinking of the Titanic, 9/11, and Stephen...

Guest Contributor

LendingClub and the Question of Internal Hedge Funds

May 19 2016 | 8:42pm ET

Peer-to-peer lending platform LendingClub Corp. has been in the news since the firm...