CHICAGO (CN) - Five investors claim they lost $11.6 million in a $550 million hedge fund scam recommended to them by William Hart and his Hartline Investment Corp., which face at least five other lawsuits for the scheme, and that the hedge fund itself has been sued by the SEC.
Lead plaintiff Marsha Serlin says she and her co-plaintiffs invested $11,576,327 at the direction of Hart and Hartline, that $6.1 million of it was hers, and that the "losses could have been totally avoided by the defendants."
She claims Hart persuaded her and her co-plaintiffs to put their $11.6 million into "a
$550,000,000 Florida hedge fund that is subject to lawsuit filed by the Securities and Exchange Commission, allegedly fraud and other violations [sic]. The SEC lawsuit is pending in the United States District Court, Middle District of Florida, Fort Myers Division."
Serlin says Hart persuaded her and her co-plaintiffs to put their money into "a shaky acute care medical chain of clinics." She says investors have filed five other lawsuits against Hart and his Chicago-based investment company, which claims to have $500 million in assets under management.
Serlin claims Hart advised her to put her money into an LP called Founding Partners Stable Value Fund I and II, whose president, founder CEO and sole shareholder was William L. Gunlicks, who is not a party to this complaint.
Serlin claims Hart told her and her co-plaintiffs that "the Fund was a great investment and very difficult to get into, but that he was a good friend of Gunlicks and would be able to get the plaintiffs into the Fund.
"The minimum investment in the Fund was $500,000," which allegedly could be redeemed at any time. Serlin says Hart promised 13 percent annual returns or more.
"The Fund was guaranteed to make money since the money invested was to only be used to make loans for the purchase of high quality accounts receivables owned by health care facilities," the complaint states. "Further, that the receivables were investment grade and only the best ones were selected for purchase. The payment of receivables was to be made by highly rated insurance companies and also government payors, and that there was no risk of non-payment."
But Serlin calls it a case of crony capitalism: "Defendant Hart admits to having a 30-year friendship and professional relationship with William Gunlicks. This relationship has been highly profitable for Hart and was incentive for him to breach his fiduciary duty and other duties complained of herein," the complaint states.
She says the fund suspended redemptions in January 2009.
The house of cards crashed for good in April 2009, when the SEC sued Gunlicks and Founding Partners for securities fraud in Florida, according to the complaint, which lists eight counts of fraud and "violating a prior cease and desist order from the SEC".
Serlin claims Founding Partners had only $600,000 in cash reserves out of the $550 million that had been invested.
She claims: "When the SEC filed its fraud lawsuit against Founding Partners and William Gunlicks, defendant Hart insisted and persuaded that persons who invested in Founding Partners through defendant Hart form a group and pursue litigation against Founding Partners and Gunlicks. Defendant Hart acted as the organizer of the group and directed the group to retain a law firm in which one of partners is married to defendants' employee.
"Defendant Hart steered the plaintiffs in this direction so that plaintiffs would be dissuaded from retaining independent counsel to pursue claims against defendant Hart and his firm. This clear conflict of interest is further example of the breach of duties described herein."
The plaintiffs seek estors seek more than $11.6 million in damages for breach of fiduciary duty, negligent misrepresentation and fraud.
They are represented by Aaron Israels with Israels & Goldsworthy, of Denver.
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