(CN) – Defrauded investors seek $13.2 million from hedge fund manager Mark Bloom, who plundered their investments to feed a ravenous spending habit on high-end real estate, luxury cars, boats and art. Bloom used investors’ money to buy beach houses in three states, four Mercedeses, two BMWs, a Porsche, three boats, and other stuff.
He also bought a $5.2 million triplex on Gracie Square in Manhattan, complete with its own gymnasium. He sold his share of it to his wife, Lauren, for zero dollars; she sold it for $11.2 million and the couple pocketed the proceeds, according to the complaint in Philadelphia Federal Court.
While doing this, Bloom lived in a 4,000-square-foot 27th-floor penthouse in a Trump condo building on Park Avenue.
Bloom pleaded guilty in July to diverting at least $20 million from a hedge fund he managed, misrepresenting the value of investors’ capital accounts, and soliciting money from new investors to honor others’ redemptions – a classic Ponzi scheme. Bloom also pleaded guilty to mail fraud, wire fraud, and money laundering. He was president, co-managing partner and majority shareholder of MB Investment Partners in New York.
Four people and Philadelphia Financial Services accuse Bloom and 10 coconspirators and employees of securities fraud, breach of contract, breach of fiduciary duty and conversion.
As principal of MB Investment Partners, Bloom held himself out as an adviser who followed a conservative investment philosophy. He said his primary goal was preserving his clients’ principal.
He did not reveal that he was also principal and sole owner of North Hills LP and North Hills Management LLC, which he held out as an especially appropriate investment vehicle. Bloom described North Hills as a “fund of funds,” generating consistent annual returns of 10 percent to 15 percent with minimal risk.
But North Hills was troubled from the start. From its founding in 1997, Bloom treated the fund as his personal piggy bank, according to the complaint. Among his other illicit schemes, he invested $17 million in the Philadelphia Alternative Asset Fund, in which he held a personal, undisclosed stake; a federal judge froze PAAF’s assets after a separate fraud, and Bloom misappropriated its settlement distributions, according to the complaint.
“Large portions of the monies Mark Bloom plundered from North Hills were also circulated to insiders of MB and/or Center Partners or in investments that would benefit them,” according to the complaint.
The plaintiffs say that in 2005 North Hills lost more than $4 million in the Refco scandal; Refco at the time was the largest futures and commodities broker on the Chicago Mercantile Exchange.
In October 2005 Refco disclosed that Phillip Bennett, its chairman and CEO, had hidden $430 million in bad debts from auditors and investors. After Refco went bankrupt, North Hills, an unsecured creditor, received 26 cents on the dollar for its $17 million investment. Bloom never disclosed North Hills’ investment in Refco or the settlement of his claim, according to the complaint.
Bloom’s scam unraveled in 2008 after two large investors requested full redemptions. When he could make only token payments, the investors threatened to sue. Bloom then acknowledged that he had used their money to buy a luxury apartment in Manhattan, according to the complaint.
Actually, Bloom allegedly had bought apartments on the Upper East and Upper West Sides of Manhattan, beach houses in the Hamptons, Florida and the Jersey shore, four Mercedeses, two BMWs, two Land Rovers, a Porsche, and three boats. He also spent hundreds of thousands of dollars on art, jewelry, parties, travel, and clothing.
The five plaintiffs say they invested more than $4.4 million with Bloom. They want it back, and treble damages.
They are represented by Paul Madden with Buchanan Ingersoll & Rooney.
Here are the defendants: MB Investment Partners, Centre MB Holdings, Centre Partners Management, Robert M. Machinist, Mark E. Bloom, Ronald L. Altman, Lester Pollack, William M. Tomai, Guillaume Bebear, P. Benjamin Grosscup, Thomas N. Barr, Christine Munn, Robert A. Bernhard, and Bruce Pollack.