Naples, Fl. — GenSpring Family Offices breached its fiduciary duty when it failed to adequately diversify the $30 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 Dovin, Malkin & Ficken and Florida based co-counsel Vernon Healy.
The Vernon Healy law firm, co-counsel on the investigation, has broad experience representing ultra high net worth individuals and families in securities fraud and financial disputes. The Dovin, Malkin & Ficken law firm has already secured a $1.3 million arbitration award against GenSpring. In that case, 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.
The new claim asserts that GenSpring proposed a diversified strategy that would allocate portions of the portfolio between “equity risk” and “bond risk.” However, in one meeting attended by GenSpring CEO Mel Lagomasino and Senior Executive Partner Michael Zeuner, the investor was told that GenSpring doesn’t believe in bonds and instead uses low-volatility hedge funds with “bond-like risk” for the bond portion of its clients’ portfolios, according to the claim.
“GenSpring explained to [the investor] that this approach had been thoroughly tested in all market conditions. GenSpring was so confident in these multi-strategy hedge funds that they explained they took much of the risk out of investing by leveling out market cycles with consistent market neutral returns in all environments,” the claim states.
GenSpring represented that this strategy allowed it to quantify the ultimate downside risk a client might experience to an exact number which would in effect show a maximum loss a portfolio might sustain, the claim states. The Florida investor filing the claim was told in a worst case scenario his portfolio would sustain a loss of 10.4 percent, according to the claim.
“How GenSpring could precisely quantify downside protection and describe these funds as having a bond-like risk profile raises significant questions for GenSpring,” securities fraud attorney Chris Vernon said. “The strategies of the particular hedge funds it was recommending to this client were cloaked and obscured in layers of secrecy.”
“As a result of GenSpring’s breach of fiduciary duty and gross negligence, the Trust lost nearly $2.5 million more than it would have had the “bond” portion of the portfolio been invested in accordance with the ‘benchmark’ standard provided in the signed investment contract,” the claim states.
The LB aggregate bond index in the benchmark went up 5 percent, moving opposite stocks in accordance with historical norms, at a time when the multi-strategy hedge funds pushed by GenSpring dropped 23 percent, according to the claim.
“These funds had a severe lack of transparency and control, and it’s apparent that GenSpring could not adequately determine what strategies they were following despite GenSpring’s representations to the contrary,” said Ed Dovin, securities attorney with Dovin, Malken & Ficken.
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, Vernon Healy has conducted aggressive nationwide investigations of 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 advocacy on behalf of Lehman note investors was recently featured in a March 2011 AARP Magazine article “The Time Bomb in Your Nest Egg” discussing the dangers of investing in structured products.
For more information Contact
Chris Vernon, attorney at law