GenSpring Family Offices Names New CEO

In a significant shakeup at GenSpring Family Offices—the wealth management division of SunTrust—both GenSpring’s CEO Maria Elena Lagomasino and CIO Jean L.P. Brunel have left the firm.  Some reports indicate that both left GenSpring to begin focusing on serving overseas clients as a global multifamily office. Whatever the reason, their tenure at GenSpring was not without its problems.

The legal team of Vernon Healy and Dovin Malkin Ficken are currently handling a number ofcases against GenSpring.  The cases allege that GenSpring misrepresented investment strategies by claiming it was putting investors’ money into funds with bond risk and a minimum downside of exposure. Nevertheless, in the wake of the financial collapse, the portfolio of those investors dropped significantly while the bond market in general increased in value. “GenSpring now has a record of being both reckless and negligent with the funds our clients entrusted to them,” said Chris Vernon, founding partner at Vernon Healy, a firm that handles securities fraud cases. “While we hope that the new executive team will exercise more care going forward, we are making sure our clients, who entrusted very significant funds to GenSpring, receive relief for their damages.”

Vernon Healy and Dovin Malkin Ficken’s promise to keep vigilant is especially significant as GenSpring’s newly named CEO, Thomas M. Carroll, brings with him a wealth of new client opportunities. Carroll is being moved from SunTrust’s Sports and Entertainment Group, an area of business GenSpring has not notably focused on in the past. Carroll’s experience dealing with athletes and entertainers is likely to open doors to managing the money of an entirely new segment of ultra-high net-worth investors for GenSpring.

“Even as we wait for a decision on the case we previously filed, we are investigating whether any of GenSpring’s other high net worth investors, including professional athletes and entertainers that already invested with the firm, have suffered damages as a result of GenSpring’s investment strategy,” said Chris Vernon.

GenSpring faces lawsuit over hedge funds in $57 million portfolio in case filed by Vernon and Dovin legal team

Naples, Fla. —GenSpring Family Offices breached its fiduciary duty and committed gross negligence when it failed to adequately diversify the $57 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 today on behalf of a retired Florida entrepreneur seeks more than $11 million, including rescission of more than $6 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 $30 million portfolio of an ultra high net worth investor.

In addition, the Dovin legal team has already received a $1.3 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 headed 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,” said 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 $17 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.

For more information contact:

Chris Vernon
Vernon Healy, attorneys at law
(239) 649-5390
www.vernonhealy.com
www.wealthmanagerattorney.com

Vernon Healy can assist professional athletes swindled in financial fraud schemes

Professional althletes are especially vulnerable to investment fraud and scam artists. They often find themselves with new-found or increasing wealth. And there’s no shortage of people eager to tell them how to handle their finances. Even investment advisors who appear cloaked in legitimacy may take egregious advantage of athletes’ wealth and push investments that produce high fees and commissions for the wealth managers but little long-term value for the athlete.

Unlike many professionals who have a long work life before retirement, athletes’ careers are short and may have their working careers cut even shorter by injury or other circumstances. That’s why prudent financial advice is critical for professional athletes. Attorneys at the Vernon Healy law firm have devoted their careers to protecting investors from rogue financial advisors and defective investment products — helping investors who’ve been deceived or cheated in financial affairs.

Our attorneys understand athletes’ unique needs and we can assist athletes who’ve been taken advantage of with recovery through arbitration and litigation.

For example, Vernon Healy is currently assisting a Major League baseball player who was drafted straight out of high school.  After he received his signing bonus, he sought advice and tax help from the local office of a national tax assistance firm. The then 19-year-old baseball star was persuaded to invest in a fraudulent scheme. He not only lost his signing bonus, but he also had to pay back taxes and interest after the IRS determined that his tax return had been improperly prepared.

The Vernon Healy law firm has been retained and has filed lawsuits on behalf of the young baseball player and others who had suffered similar losses.

Contact Vernon Healy at info@vernonhealy.com or call (239) 649-5390 to speak with securities attorney Chris Vernon.

Financial reform: SEC needs to make sure fiduciary duty applies to all stockbrokers and financial advisors, not just registered investment advisors

For decades, financial institutions have purposefully blurred the distinction between stockbrokers and investment advisors to the point that most investors believe those designations mean the same thing.

More than two thirds of the investors in the United States have the mistaken belief that stockbrokers hold themselves to the same fiduciary standards – including a commitment to always put the interests of the client first – as registered investment advisors.   These mistaken beliefs have troubling consequences for investors, and the Dodd–Frank Wall Street Reform and Consumer Protection Act should lead the SEC to promptly solve this significant problem. As discussed below, the SEC needs to clearly establish that fiduciary standards apply to all investment professionals.

Investment advisors proudly acknowledge a fiduciary duty to their customers; including a duty to always put the customer’s best interests first.  In contrast, once a dispute arises or when pressed on the issue, stockbrokers and brokerage firms often contend that they are not held to this high standard despite describing themselves as trusted advisors, financial advisors, investment consultants, and other names that make them sound like they are investment advisors.

Brokerage firms have further confused the issue in recent decades by attempting to act as an investment advisor, without giving up all the conflicts of interest arising from their simultaneous sales and brokerage activities.  As a result, brokerage firms receive what amounts to advisory fees while their employees simultaneously act as stockbrokers pitching high fee/commission “house” products such as principal protected notes, reverse convertibles, private equity funds, hedge funds,  and other investment products that are created and packaged by the brokerage firms.

These “house” products are often riddled with conflicts of interest that should be avoided by a competent and ethical independent registered investment advisor.  For example, many “structured” notes such as principal protected notes and reverse convertibles that brokers and brokerage firms recommend are actually unsecured loans from the investor to the brokerage firm under loan terms that a professional lender like a traditional bank would reject.  Investment Advisors, operating under their duty to always put their customers’ best interests ahead of their own best interest, would be troubled by this practice of borrowing money from their own client base.

As another example of the impact of this issue on retail investors, even products as mundane as bonds can be sold differently depending on the duties undertaken by the investment professional. Specifically, an investment professional with a fiduciary duty is required to diligently seek out the best price available on a particular bond to purchase for a client.  On the other hand, a brokerage firm refusing to acknowledge a fiduciary duty can simply call its own firm’s bond desk and buy the bond at the price being offered rather than shopping for the best price. Most fixed income investors would be troubled if they realized they were commonly overpaying for bonds sold by their brokerage firms.

Unfortunately, brokerage firms such as UBS, Ameriprise, LPL, Raymond James, Morgan Stanley, Merrill Lynch, and others often claim that their financial consultants are only required to stay within the client account’s “suitability requirements” – a lesser standard that only requires the broker to determine that the product being pitched is “suitable” for the client.   This is akin to having your attorney or physician recommend an option that is suitable for you, without regard as to whether it is the best way to proceed among multiple suitable options.  In this scenario — as argued by brokerage firms — the stockbroker is free to choose the suitable option that is most lucrative and/or easiest for the stockbroker.

The results of a nationwide survey on fiduciary standards conducted by Infogroup/ORC this past August, show that a nearly unanimous 97 percent of the people agreed that “when you receive investment advice from a financial professional, the person providing the advice should put your interests ahead of theirs and should have to tell you upfront about any fees or commissions they earn and any conflicts of interest that potentially could influence that advice.” The survey shows that two out of three investors surveyed assumed that stockbrokers are held to a fiduciary duty standard.  In fact, three out of five investors believe that “insurance agents” also have a fiduciary duty to their clients – but most insurance agents will often deny a fiduciary standard if pressed.

FINRA, the private self-regulatory organization funded entirely by the securities industry, acknowledges that a fiduciary standard should be instituted for brokerage firms and their licensed financial consultants, i.e. stockbrokers.  In FINRA’s 2009 Year End Report, FINRA’s Chairman and CEO Mr. Richard Ketchum commented: “We support a fiduciary standard for broker-dealers who provide personalized advice and believe the SEC is the correct agency to ensure that the standard is both effective and properly reflects the diverse business models and complex organizations that characterize the broker-dealer industry.”

On July 21, 2010 President Barrack Obama signed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act.  This comprehensive legislation gives the SEC the necessary tools to overhaul many regulations in the financial sector, among them fiduciary duty standards. Although the Act requires the SEC to conduct a six-month study to determine if stockbrokers should be held to the same fiduciary standard as investment advisors, SEC Chairman Mary Schapiro has already publicly commented on this issue:

“I have advocated such a uniform fiduciary standard and I am pleased the legislation provides us with the rulemaking authority necessary to implement it,” Schapiro said in a July 2010 speech at the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.

Based on the foregoing, the SEC must now step up and promptly force brokerage firms to accept that they have the same legal duty as true investment advisors.  If the SEC decides to impose a fiduciary duty on stockbrokers as it should, it would force all investment professionals to put the investor’s interests ahead of their own. It would also force the securities industry to address significant and troubling conflicts of interest that lead members of the brokerage industry to deceptively put their own financial interests ahead of the financial interests of their own clients.

Given the fact that FINRA, the SEC, lawmakers, and investor rights advocates all agree that brokerage firms should have a fiduciary duty to their client base, it is hard to imagine how this standard would not be implemented by the SEC in early 2011.   Investors should look forward to this very significant improvement to the system and hold the SEC accountable if it fails to fix this problem.

Christopher Vernon is a Naples-based attorney with the law firm Vernon Healy.  He advocates for the rights of investors throughout the United States and abroad—both in and out of the courtroom and arbitration hearing room. Mr. Vernon currently holds an AV rating by Martindale-Hubbell, has been repeatedly recognized by his peers in The Best Lawyers in America and has also been consistently recognized in the Florida editions of the Super Lawyers publication. Mr. Vernon has spoken at both national securities and national trial attorney conventions and has also conducted continuing education in the U.S. and abroad for CPAs, CFAs, CFPs, investment professionals, board certified business litigation lawyers, board certified trust and estate lawyers, and securities regulators. Mr. Vernon has also testified as an expert on issues relating to FINRA arbitration.

This article was co-written by Victor Bayata. Mr. Bayata is also with the law firm of Vernon Healy.