Historic D.C. Orphanage Claims|It Was Scammed for $8 Million | Courthouse News Service
Tuesday, November 28, 2023
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Historic D.C. Orphanage Claims|It Was Scammed for $8 Million

WASHINGTON (CN) - Hillcrest Children's Center says its investment advisers squandered and stole nearly $8 million from it, crippling its work helping impoverished children and mothers in the District of Columbia. The nonprofit Center - founded by Congress for orphans of the War of 1812 - sued Gibraltar Asset Management Group, its five top officers and their attorney. Hillcrest says Gibraltar "siphoned off more than $7.6 million from the trading account for their own personal gain," reducing the $8 million trading account to "a stunning $200."

The Children's Center seeks $8 million in compensatory damages and punitive damages for fraud, conspiracy, securities fraud, conversion, breach of fiduciary duty, negligent misrepresentation, unjust enrichment, and other claims.

Hillcrest says Gibraltar and its CEO Garfield Taylor won its trust by completing a successful trial investment run, making every scheduled return payment on the Center's $1.2 million trial investment. "As a result, in February 2009, Hillcrest chose to invest half of its endowment with Gibraltar," according to the complaint.

But things didn't work out as planned.

"This is a straightforward case of theft and fraud committed by the defendants of more than $7 million from Hillcrest," the complaint states. "Upon learning that Hillcrest was seeking new investment advisers to manage its endowment, which was worth millions at the time, the Gibraltar defendants represented themselves as prominent and legitimate investment advisers within the African-American community in Washington, D.C. Through their oral presentations and written materials to Hillcrest's Board of Directors, the Gibraltar defendants represented themselves as sophisticated money managers who used proprietary trading strategies, extensive market knowledge, and detailed market research to grow investments with the promise of virtually no risk of loss to their investors."

Hillcrest says it took the bait and gave Gibraltar $8 million to invest, but Gibraltar and its team "misappropriated and stole Hillcrest's funds for their own personal gain."

Gibraltar's scheme - what it told Hillcrest was called a "covered call investment strategy" - involved purchasing a stock while simultaneously selling a call option on the stock, which Gibraltar alleged was a low-risk high-reward system, Hillcrest says.

But after getting its hands on the millions, Gibraltar set up Hillcrest Funding LLC, which it falsely represented would be controlled by Hillcrest, and used it as "a vehicle to defraud Hillcrest," according to the complaint.

Hillcrest claims, "the account statements demonstrate that beginning in March 2009, Taylor and Gibraltar was actively purchasing and selling securities in the trading account and then systematically transferring the proceeds of those trades for their own use. Taylor and Gibraltar had made numerous, unauthorized, and impermissible transfers from the trading account amounting to millions of dollars which were obtained through the purchase and sale of securities in the trading account funded by Hillcrest."

Hillcrest claims Gibraltar made its required monthly interest payments, but was all the while "looting" the trading account. Hillcrest says Gibraltar never used its covered-call strategy, but went after high-risk investments.

When Hillcrest confronted Gibraltar about inexplicable losses, "Taylor claimed that the roughly $4 million dollars that had been diverted into an unknown account were 'profits' to which he was entitled," according to the complaint.

"The brazenness with which these funds were effectively looted from the investment account ... demonstrate the extraordinary gravitas of this fraud," Hillcrest claims.

It says Gibraltar refuses to return its money after the Center served it with a notice of default, leaving its facility facing financial ruin.

Hillcrest is a nearly 200-year old operation founded by Congress. It began as an orphanage for children left homeless by the War of 1812. It has since operated as a mental health facility serving impoverished families in many different capacities, "with a particular focus on assisting impoverished single mothers and their children. ... It offers a wide range of services, including substance abuse treatment and prevention, parenting education, crisis intervention, psychiatric evaluation, anger and stress management guidance, and a range of counseling and community support services, all of which were funded in part by its endowment."

Now it says it's as poor as the people who seek help from it, claiming that "as a result of the defendants' theft, only approximately $200 of the $8 million investment remains."

Named as defendants, along with Gibraltar and Taylor, are Gibraltar COO Jeffrey King, investment officer Maurice Taylor, vice president Randolph Taylor, vice president Benjamin Dalley, and attorney Stuart Gary and his law office Gary & Regenhardt, of Vienna, Va.

Hillcrest is represented by Christopher Davies with Wilmer Cutler.

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