MANHATTAN (CN) - In a "modern-day case of grave robbery," International Fund Services of Ireland helped two businessmen steal $60 million from 29 Michigan cemeteries' trust funds by juggling hedge fund records, a cemetery operator claims in Federal Court.
"This is a modern-day case of grave robbery," Midwest Memorial Group says in its complaint. "Defendant International Fund Services (Ireland) Limited ('Defendant' or 'IFS'), a hedge fund administrator, actively assisted Clayton Smart, Mark Singer and brokerage fund Smith Barney, in their scheme to take control of twenty-nine Michigan cemeteries to loot their trust funds. These funds were designated for upkeep of grave sites and the purchase of merchandise such as grave markers and vaults. Smart and Singer stole about $60 million in total, leaving the cemeteries in financial ruin and jeopardizing the future of the sacred ground they maintain. IFS's assistance, in the form of backdating financial documents, was essential to this scheme."
The scandal affected some of Michigan's oldest cemeteries, "where thousands of Michigan residents have been laid to rest, including Henry Ford and civil rights icon Rosa Parks," according to the 24-page complaint.
The cemetery trust funds were held in "two types of statutorily required trust accounts" - irrevocable endowment care trust accounts for the cemeteries' upkeep, and prepaid merchandise trust accounts - neither of which were allowed to be pooled, Midwest says.
Midwest claims that Singer met the former owner of the cemeteries, Craig Brown, in 2003 and together they commingled the trust money and placed it into several hedge funds, through Bush's shell company Summerfield LLC. The hedge funds were administered by International, Midwest says.
Singer and Smart then conspired to have Smart buy the cemeteries, to get their hands on the trust money, despite the fact that Smart had no assets, according to the complaint.
In June 2004, Singer, who worked at Smith Barney, helped get Smart approved for more than $31 million in loans, after Smart fraudulently pledged the cemeteries' trust funds as his own, according to the complaint.
In August 2004, Bush and Smart signed a purchase agreement for the cemeteries, though Smart did not pay anything at that time, Midwest claims. While Smart gained authorization to operate the cemeteries, he could not sell, transfer or dispose of any assets, and could not make changes in the investment of the trust funds until he paid Bush the $31 million, Midwest says.
In September 2004, International lent a hand by backdating cemetery trust fund transactions to June 30 of that year "to make it appear that Smart had assets at a time when he did not," in order for Smith Barney to finally close on the loan, Midwest claims.
"This loan gave Smart the financial credibility he needed in order to make the transactions appear legitimate," according to Midwest. It claims that International's conduct "was material to establishing this credibility."
Smart could not actually use the loan money to pay Bush for the cemeteries though, because he was unable to repay it, Midwest says.
Instead, Smart and Singer "began moving funds in and out of the Smith Barney accounts in a swirl of fraudulent activity," Midwest claims. It says they looted the cemeteries' trust money to pay Bush and "line their own pockets."
Midwest claims that "Smart and Singer engineered an elaborate scheme to cover up the looting by misrepresenting it as a series of bona fide investments," and sent out bogus monthly statements to the cemeteries, their accountants and auditors, and to authorities who oversee Michigan cemeteries. In 2006, the two were investigated, and conservatorship proceedings were filed in Michigan "alleging that more than $60 million in Cemetery Trust Funds were unaccounted for," the complaint states.
"Smart is currently in jail awaiting trial in Tennessee arising from similar conduct there," according to the complaint. It adds that he "faces indictments in Michigan and Indiana as well," and that the Michigan charges include racketeering and embezzlement. "Singer has also been indicted in Indiana and Tennessee for cemetery related schemes in those two states."
Midwest bought the cemeteries from the Michigan conservator, and filed suit in Michigan against International, Singer, Smart, Barney and others, though it expects that International will be dismissed from that complaint after challenging personal jurisdiction.
Midwest demands damages for aiding and abetting, negligence and conspiracy. The only defendant in this complaint is International Fund Services (Ireland) Ltd.
Midwest's lead counsel is Michael Carlinsky with Quinn Emanuel Urquhart & Sullivan.
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