Investment Company Loots $8 Million From Nonprofit

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February 2, 2011; Source: Courthouse News Service | This is a study in the need for care when choosing an investment firm. A Washington, D.C., nonprofit whose history dates back to the founding fathers, claims it was the victim of a scam that looted nearly its entire $8 million investment fund.  Hillcrest Children's Center, which provides mental health counseling to children and their families – and whose first director was Dolly Madison – filed a lawsuit this week claiming that Gibraltar Asset Management Group emptied the nonprofit's investment accounts of all but $200.

The complaint seems to imply that the looting was premeditated. "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 put Gibraltar “through a “trial investment  run” with only $1.2 million and only after the firm made all scheduled return payments did it place the larger fund there. The complaint alleges that the defendants "siphoned off more than $7.6 million from the trading account for their own personal gain."  If Hillcrest doesn't prevail in court, it could spell the end to an institution operating since it was first started in 1815 by Congress to provide a safe haven for children left homeless by the War of 1812.  The group later became an independent nonprofit.  Now, according to its website, Hillcrest focuses on the mental health needs of children, single parents, teen-aged mothers, "and on families crippled by poverty."

According to Courthouse News Service, thanks to its investment losses, the group is "as poor as the people who seek help from it." Hillcrest is seeking $8 million in compensatory damages and punitive damages for fraud, conspiracy, securities fraud, conversion, breach of fiduciary duty, negligent misrepresentation, and unjust enrichment.  The suit claims since March 2009, when it took over management of Hillcrest's investments, "Gibraltar was actively purchasing and selling securities in the trading account and then systematically transferring the proceeds of those trades for their own use."—Bruce Trachtenberg