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Sunday, July 21, 2024 | Back issues
Courthouse News Service Courthouse News Service

Accountants, Lawyer Accused in Ponzi Scam

MANHATTAN (CN) - A charitable foundation that runs children's schools claims that accountants and a lawyer aided and abetted a Ponzi scheme run by a hedge fund manager who stole at least $20 million from his victims.

The Alexander Dawson Foundation sued accountants Brian F. Zucker, Zucker & Associates, Glenn E. Davis, Robert M. Graber and Davis Graber Plotzker & Ward, and attorney Victor Rosenzweig, a director of the North Hills hedge fund. The Dawson Foundation claims the Ponzi scheme was run by Mark Bloom, who is not a party to this complaint, in New York County Court.

The complaint states: "From 2001 to 2008, Bloom ran a Ponzi scheme in the guise of a legitimate hedge fund - North Hills - and stole investors' money to pay for his and his wife's lavish lifestyle. As a result of his egregious misconduct, on July 30, 2009, Bloom pled guilty to securities fraud, mail fraud, wire fraud, money laundering, and corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue Laws. ...

"From July 2001 until plaintiffs uncovered Bloom's fraud in November 2008, Bloom diverted at least $20 million from the fund's bank account - an amount far in excess of the management fees and share of profits to which Bloom was entitled under the fund's governing documents. Bloom transferred these funds to NHM [North Hills Management LLC], the fund management company that he operated and of which defendant Rosenzweig was director. Bloom used NHM as his person piggy bank. During this time period, Bloom typically transferred hundreds of thousands of dollars weekly, if not daily, from North Hills to NHM."

The Dawsons claim that Rosenzweig, as a director of NHM, failed "to provide oversight of Bloom's activities and to disclose Bloom's fraud once he learned of it."

Bloom blew the money on, "among other things, a $5.2 million luxury home at 10 Gracie Square in Manhattan, at least $2.3 million in renovations to 10 Gracie Square and other properties owned by Bloom and his wide, at least $750,000 in art and $600,000 in jewelry, and hundreds of thousands of dollars for parties, travel, personal services, and clothing."

The Alexander Dawson Foundation, created by businessman-philanthropist Girard Henderson in 1957, runs schools in Colorado and Nevada. They offer traditional liberal arts education.

The plaintiffs say that Bloom cost the foundation more than $9.75 million, including more than $8 million from the foundation that was to be "used to educate children."

Co-plaintiffs include trusts for the Borini family; individual plaintiffs also were limited partners in North Hills.

The plaintiffs claim the defendant accountants knew of Bloom's scheme and helped him cover it up. They say that between 2004 and 2008, Zucker and his firm kept track of the money coming in and out of the fund through ledgers that "most plainly disclosed the constant flow of funds stolen by Bloom."

Zucker and his firm also prepared falsified tax returns for the fund and false Schedule K-1 returns to give to investors, the plaintiffs say.

"At least four of Zucker's former clients have been the subject of criminal investigations, and several of them were eventually convicted for their frauds," the complaint states.

Davis Graber Plotzker & Ward gave the foundation and the Borini trusts a "clean opinion" of the North Hills fund from 2001 to 2003, though Gruber had reviewed the fund's ledgers - which included numerous "notes receivable" transfers - and was aware that by 2003 "Bloom had taken more than $8 million out of the fund without documentation," according to the complaint.

In 2004, while having "knowledge about Bloom's theft," Davis Graber told foundation trustees that the fund was in "sound financial condition," causing the foundation and the Borinis to invest an additional $2.9 million, they say. Davis Graber also "falsely signed off on the legitimacy of the North Hills investment" while preparing personal tax returns for the Borinis, the complaint states.

The plaintiffs say that in 2004 and 2005, Bloom placed $17 million from the North Hills fund in the Philadelphia Alternative Asset Fun" (PAAF), from which he received $350,000 in kickbacks. In 2005, U.S. Commodity Futures Trading Commission deemed the PAAF a fraud and shut it down, according to the complaint.

At that point, "Zucker became concerned that the North Hills fraud might come to light as well" and "asked Bloom to provide him cover by generating documentation that would effectively disguise the money stolen from North Hills as a would-be legitimate 'loan that Bloom was to repay," the plaintiffs say. They claim Bloom created a phony, backdated "demand note" for more than $13 million which was never repaid.

The plaintiffs say that "Graber became nervous" after the PAAF fell apart and his firm "resigned from the North Hills account due to their discomfort with the amount of money Bloom owed the Fund's investors and Bloom's failure to pay it back."

In 2008, Davis Graber revealed Bloom's theft to Mario Borini, but "insisted that he intended to repay what he owed," the plaintiffs say.

Finally, the plaintiffs say that Rosenzweig - Bloom's second cousin and a securities law attorney - signed on as director of the fund, yet "never reviewed any of the fund's annual financial statements until June 2005."

When he finally discovered Bloom's scheme, "Not only did Rosenzweig fail to disclose the fraud, but he helped Bloom conceal it," the complaint states. The foundation claims the attorney "encourage(ed) him [Bloom] to create a backdated, phony demand note to make it look like Bloom had borrowed the money. ... The note had no due date, and interest was payable only when Bloom demanded it of himself. On its face, the note was bogus."

A 2008 lawsuit the foundation brought against Bloom in the same court is still pending.

The plaintiffs demand damages for aiding and abetting, accounting malpractice, fraud, breach of fiduciary duty and negligent misrepresentation.

Lead counsel is Adam Fotiades with Kirkland & Ellis.

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