Citigroup’s new slogan, “Citi Never Sleeps” may take on a secondary meaning these days.  After writing down almost $41 billion in 2007 and financial landmines lurking around every corne, who could sleep with all that worry.

No one would be surprised if CEO Vikram Pandit needed a a few Ambien before tucking in for the night.  He’ll need a steady supply for the foreseeable future after he tries to resolve the latest financial mess at Citigroup. 

Falcon Strategies, an internal hedge fund at Citigroup has lost more than 75% of its value and caused steep losses for retail clients at the firm’s Smith Barney unit.  But the bulk of the losses were sustained by U.S. banks, Wachovia and Fifth Third Bancorp according to a WSJ article.  Combined, the two banks invested more the $1.5 billion into Falcon. 

According to the WSJ, Falcon has filed a lawsuit against Transamerica Life Insurance Co. and Clark Consulting Inc., both units of Dutch insurer Aegon NU. The lawsuit contends the units “utterly failed to properly manage and monitor” premiums that were invested in Falcon.  Wachovia has not decided whether to pursue legal action. 

The banks may have an argument to get back some of their $1.6 billion investment after Citigroup agreed to spend $250 million to allow the retail investors to exit from their positions without sustaining the fund’s full losses.

With losses like these and more sure to be uncovered, Vikram Pandit will need something a lot stronger to get him through this year.