Swindled Mass. Investors Blame Canadian Portfolio Managers

Swindled Mass. Investors Blame Canadian Portfolio Managers

By: Alison Noon
Originally Published on Law360

Law360, Boston (February 16, 2018, 7:35 PM EST) — An attorney for 16 wealthy investors conned by an admitted securities fraudster and his sham hedge fund asked a Massachusetts federal judge on Friday to let them continue to pursue claims against Canadian portfolio managers who handled their money on the fraudster’s behalf.

Yasuna Murakami faces sentencing later this year for the Ponzi-style scheme, but the investors claim some fault also lies with the asset managers who allegedly turned a blind eye to the scam, which cost them more than $2.6 million. The investors alleged that Donville Kent Asset Management Inc., founder Jason Donville and employee Jordan Zinberg owed them a duty to institute controls on Murakami’s MC2 Capital Canadian Opportunities Fund and warn of any skepticism of him — but they allegedly didn’t.

“Our clients lost a lot of money and trust on the promises that the defendants would handle the plaintiffs’ money,” Lydia M. Floyd of  Peiffer Wolf Carr & Kane Abdullah Carr & Kane APLC said in court.

The asset managers fought to have the case dismissed on the grounds that they contracted only with the faulty hedge fund, not the investors themselves. U.S. District Judge F. Dennis Saylor IV took no immediate action on the motion to dismiss at the end of Friday’s hearing.

“Donville Kent had one duty here: to manage the investment portfolio,” Donville Kent counsel Michael J. Pineault of Clements & Pineault LLP argued in court. “Nothing said they had to do more than that,” he said.

Murakami pled guilty in January to one count of wire fraud for misappropriating a $1 million investment in 2013, a fraction of the larger scheme he acknowledged in court to divert millions of investor dollars to his bank account and that of his business partner, Avi Chiat. Chiat remains at large. The U.S. Securities and Exchange Commission has claimed in a pending civil suit that they stole $11.2 million from more than 50 investors.

The investors and Saunwin International Equities Fund LLC filed identical suits in August 2017, saying that the asset managers knew, but failed to disclose, that they were doing business with a nefarious fund over which they lacked any control.

The complaints called it “a highly unusual and suspicious arrangement that was conducive to fraud and embezzlement.”

They go on to claim that Donville Kent skirted regulatory scrutiny by handing Murakami the reins on the fund’s management despite telling investors that the firm would handle their money. The “consulting arrangement” that the firm is hiding behind, the investors allege, was a sham used to charge the investors management fees and avoid drawing bureaucratic eyes to the scheme.

But they have made no claims that Donville Kent or its executives knew of Murakami’s scheme or participated in it, nor have they claimed that the firm mishandled their money, the company argued in a December court filing.

The investors, most of them from the Boston area, sank about $2,645,000 into Murakami’s hedge fund from 2011 to 2014, according to their complaint.

Tara Holbrook invested $900,000; Raymond Tung and Richard Smith each invested $300,000; Peter Lloyd and Robert Greenfield each invested $150,000; Steven Krugman invested $120,000; Jeff Stanley, Catharine Mintzer, Allan Huntley, Todd Patkin and Jonathan Weiss each invested $100,000; Herbert Weiss, Dave Micalizzi, Richard Elkin and Dale Whitebloom each invested $50,000; and Lee Chartock invested $25,000.

Donville Kent, Donville and Zinberg are represented by Michael J. Pineault of of Clements & Pineault LLP.

Saunwin and the investors are represented by James P. Booker, Lydia M. Floyd and Alan L. Rosca of Peiffer Wolf Carr & Kane Abdullah Carr & Kane APLC, and Elizabeth A. Ryan of Bailey & Glasser LLP.

The cases are Holbrook et al. v. Donville Kent Asset Management Inc. et al. and Saunwin International Equities Fund LLC v. Donville Kent Asset Management Inc. et al., both in the U.S. District Court for the District of Massachusetts.

See original story: Law360

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In our legal system, every person is innocent until and unless found guilty by a court of law or a tribunal. Whenever we reference “allegations” or charges that are “alleged,” such allegations or charges have not been proven, and are merely accusations, not findings of fault, as of the date of the blog. We do not have, nor do we undertake, a duty to continue to monitor or follow cases about which we report, and/or to publish subsequent blogs regarding various developments that may occur in such cases. Readers are encouraged to conduct their own research regarding any such cases and any developments that may or may not have occurred in such cases.