GenSpring Family Offices breached its fiduciary duty and committed gross negligence when it failed to adequately diversify the USD57 million portfolio of an ultra high net worth individual and misrepresented that hedge funds it recommended would perform like bonds, according to an arbitration claim filed by the law firms of Vernon Healy and Dovin Malkin & Ficken.
The legal claim filed on behalf of a retired Florida entrepreneur seeks more than USD11 million, including rescission of more than USD6 million in hedge funds that are now illiquid that GenSpring represented would be "as safe as bonds with upside." GenSpring also represented that the multi-strategy hedge funds would be far more liquid than they have turned out to be, according to the claim.
The Dovin Malkin & Ficken and Vernon Healy team are representing ultra high net worth individuals in an aggressive nationwide investigation of GenSpring Family Offices. The team previously filed an additional claim charging that GenSpring failed to diversify the USD30 million portfolio of an ultra high net worth investor.
In addition, the Dovin legal team has already received a USD1.3 million arbitration award -- representing a win -- against GenSpring in which the arbitrator found that GenSpring breached its fiduciary duty when it used hedge funds instead of bonds for much of the bond risk portion of that investor's portfolio.
"These funds had a severe lack of transparency and control attributable to the fact that their multiple managers in the various sub funds could employ essentially any strategy they chose at any particular point in time. Thus, GenSpring could not adequately determine what strategies these managers were following, and whether these strategies provided 'bond-like' risk," according to the claim filed today by the team led by securities fraud attorneys Chris Vernon and Ed Dovin.
The retired entrepreneur's colleague, trained as a CPA, began raising concerns about the hedge funds in the investor's portfolio in late 2007 and 2008, according to the claim. GenSpring repeatedly dismissed the concerns and sought to dissuade liquidation of the hedge funds by the investor, the claim asserts.
Prior to the financial crisis, the hedge funds with purportedly bond-like risk recommended by GenSpring were actually moving in lock step with equities and GenSpring was aware of that fact, according to the Vernon Healy and Dovin Malkin & Ficken claim.
"In truth, and contrary to its representations, GenSpring did not have a reasonable basis to believe that multi-strategy hedge funds would perform like bonds, provide diversification from equities or remain liquid in the event of a need to reallocate," the claim states.
GenSpring's stated benchmark for the so-called "bond risk" feature of the hedge funds it recommended, the Lehman Bond Index, actually moved opposite of stocks in accordance with historical norms and went up more than 5 percent -- while the multi-strategy hedge funds in the portfolio that GenSpring represented had bond-like risk actually went down roughly 25 percent in 2008, the claim says.
"Here again our legal team is prosecuting a case involving hedge funds cloaked in secrecy," says securities fraud attorney Chris Vernon. "High net worth individuals and institutions are now seeking to hold GenSpring and other firms accountable for representations that were made with no reasonable basis in fact -- given the lack of transparency surrounding certain hedge funds and fund of funds."
GenSpring Family Offices is owned, in part, by a wholly-owned subsidiary of SunTrust. GenSpring has stated it has more than USD17 billion under management and its clients are among the wealthiest families in the world.
The securities attorneys at the Vernon Healy and Dovin Malkin & Ficken law firms collectively have more than 60 years of experience representing investors who are victims of securities fraud and all manner of financial fraud and negligence.
Based in Naples, Florida, the securities attorneys at the Vernon Healy law firm have conducted aggressive nationwide investigations of hedge funds, structured products, reverse convertibles, fixed income products, bond funds, hedge funds, non-traded REITs, and various securities fraud cases and Ponzi schemes. The firm's investigations and advocacy on behalf of investors have been featured in AARP magazine and Forbes in the past year.