Citigroup Falcon Fund Investors Drop Lawsuit Over Tender Offer

July 23 (Bloomberg) -- Investors in one of Citigroup Inc.'s Falcon Strategies hedge funds dropped a lawsuit seeking more information on the bank's plan to liquidate the fund after a judge rejected their bid to halt the transaction.

U.S. District Judge Sidney Stein in New York approved the withdrawal of the suit July 21. The proposed class-action, or group, lawsuit was filed May 20 on behalf of investors asked to tender shares of Falcon Strategies Two LLC. Investors sought corrections in the offering memorandum, saying they couldn't value their stakes due to omitted and misleading information.

``The plaintiff is attempting to transform the anti-fraud provisions of the securities laws into broad disclosure provisions,'' Stein said June 17, rejecting their motion.

Citigroup, the largest U.S. bank by assets, started shutting down the fund in March when it suspended redemptions and distributions. The fund fell in value by about 80 percent, according to the complaint. The bank offered to pay 45 cents for shares valued at $1 each when the fund began in 2004.

New York-based Citigroup said in a Feb. 22 regulatory filing that it was providing a $500 million line of credit to the Falcon funds and consolidating their $10 billion in assets and liabilities onto the bank's balance sheet.

Bank spokesman Jon Diat declined to immediately comment. Investor lawyers Samuel Rudman and Joseph Russello of Coughlin Stoia Geller Rudman & Robbins in Melville, New York, didn't immediately return calls seeking comment.

The case is Ferguson Family Trust v. Falcon Strategies Two LLC, 08-cv-4723, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Thom Weidlich in New York federal court at tweidlich@bloomberg.net.