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

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...