Obituaries: CYGT aka The Stock That Killed My Hedge Fund

Today, Cygnus (CYGT), a long-time Ticketmaster-wanna-be, lost their long-time battle against bankruptcy. They had been struggling ever since their first brush back in early 2006, barely clinging to life as if their leader was Terri Schiavo, but today, they finally succumbed to Chapter 11, the most common ailment among penny stocks.

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The company, founded in 2001, is best known for their role in bringing down my hedge fund, Cilantro Fund Partners, LP—accounting for a roughly 35% loss—and causing me endless grief from the joke that is “the financial community”.

As detailed in my book An American Hedge Fund, in mid-2004, after nearly six years of uninterrupted six-figure annual profits, my ego and real world inexperience—aided by a top notch presentation delivered by the then CFO, a family friend—led me to invest 10% of my fund in this privately-held company.

At first, everything was rosy—the company went public in early 2005, doubling my investment—although the shares were restricted—and began high profile relationships with blue-chip companies such as AOL, Hershey, AAA, Harrah’s, Expedia and Universal.

But just one year later, reeling from bad breakups with Universal and Expedia, CYGT needed a cash transfusion to stay alive. After a rigorous search, my fund was one of the only donors whose capital type matched theirs, type FFF.

Although I was somewhat against it, I just couldn’t let the poor thing die, especially since the doctors were optimistic they were capable of making a full recovery. So, along with a few other brave souls, my fund donated capital—another small piece—in order to save CYGT’s life and more importantly; to give me more time to get my fund’s things, move out and make a new life for us.

The procedure was a success, CYGT was healthy again and within a few months, they entered into a long-term relationship with then healthy Six Flags (SIX). And over the next year or so, I was able to move out gradually, even though my moving out had a truly detrimental effect on the stock and there was little chance for me to say farewell entirely. Thanks in no small part to this love-hate relationship, my hedge fund closed in late 2007.

By early 2008, an ailing SIX had infected CYGT with their debt virus and CYGT needed another capital transfusion. Unfortunately, by this time, my hedge fund was dead and buried and there was nobody with capital type FFF willing to donate anymore capital.

The company is survived by a dozen hapless employees and hundreds of bitter shareholders. According to the wishes of CYGT, no press release was issued, there’s only a filing that can be read HERE. Friends and family of the deceased are encouraged to say their peace below.

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