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Recent Cases: Investor recovers $4 million from promoter of tax-advantaged investments |
In November 2000, the Claimant invested $4.9 million in a “Fund of Funds.” Of that, $1.1 was to be invested in a hedge fund which would supposedly generate tax benefits, and the remaining $3.8 million was represented as being invested in a venture capital fund which had the potential for capital appreciation. This aspect of the investment was critical because in order for the investor to get the tax advantages from the hedge fund portion of the investment, the venture capital had to be “at risk” under IRS rules. However, the Claimant later learned that the $3.8 million which was represented as being invested in the venture capital fund was instead paid to the fund manager in “indirect replacement fees.” As a result, the Claimant not only lost his entire investment, the IRS ruled that the venture capital fund was a sham and disallowed the tax benefits from the hedge fund portion of the investment. In mid 2006, the Investor filed an NASD arbitration against the advisor and fund manager who organized, sold and managed the Fund of Funds. After withstanding a motion to dismiss the claim filed with the NASD, in a confidential settlement, the Firm recovered approximately $4 million for the Investor. The case was handled by Ed Dovin and Allison Ficken. |
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