The Law Office of Eric Norstedt, P.A. and the Law Firm of Vernon Litigation Group have filed an arbitration claim against NFP Securities, Inc. for the inappropriate sale of the Hennessey Financial Monthly Income Fund LP, now known as Capital Solutions Monthly Income Fund, LP. The claim was filed after a federal court denied “Hennessey Fund” or “Capital Solutions” Motion for summary judgment in a case brought by the Securities and Exchange Commission for alleged securities fraud committed by the Fund.
According to the Claim filed last week, the client approached NFP Securities to invest the bulk of her net worth in conservative investments. The Florida investor informed the NFP financial advisor that she had a limited understanding of the stock market and wanted to make sure any recommended investments were low risk. Nevertheless, NFP Securities placed the investor’s savings in high-risk alternative investments, one of them being the Hennessy Financial Monthly Income Fund LP.
The Claim states that NFP Securities assured the client that she would receive a good dividend on the Hennessy Fund (i.e., Capital Solutions) investment. The Claim also states that the NFP Securities financial advisor indicated that he had thoroughly researched and conducted due diligence on the Hennessey Fund; that he was personally familiar with the individuals who managed the Hennessey Fund; and that investors would receive their principal back when the Hennessey Fund would liquidate years later.
Soon after NFP Securities sold the Hennessey Fund to the investor, the Fund initially began paying the distribution that NFP Securities had promised. However, the Fund subsequently cut its distributions in half, and by November of 2009, the Hennessey Fund suspended all distributions permanently. The Claim asserts that, contrary to what the Florida investor was told about the Hennessey Fund, NFP Securities knew or should have known that the Fund was already experiencing severe financial difficulties by the time it was sold to investors. Regrettably, the Claim (which alleges damages not in excess of $499,000) indicates that the Hennessey Fund (i.e., Capital Solutions) may now be virtually worthless, decimating the investor’s savings. As stated above, the Hennessey Fund is now being pursued as a fraudulent investment by the SEC.
According to a federal court opinion in the SEC fraud case against the Hennessey Fund/Capital Solutions, NFP Securities did not conduct adequate independent due diligence report on the Hennessey Fund (i.e., Capital Solutions) until December of 2008 (which was several months after NFP Securities had sold the Hennessey Fund investment to the Florida investor). The Court's opinion highlights that NFP Securities did not forbid its brokers from continuing to recommend the Hennessey Fund to their investors.
“It is apparent that in making the Hennessey Fund recommendation NFP Securities failed to provide investors with a fair and balanced assessment of this investment,” said Chris Vernon, a securities fraud lawyer and founding partner at Vernon Litigation Group. According to Eric Norstedt, also a securities fraud lawyer, NFP Securities’ questionable business practices were evident in this case. “NFP’s failure to perform the proper due diligence on the Hennessey Fund prior to recommending it to investors is not only troubling but a disturbing breach of its duty to our client.”
According to an investigation conducted by the attorneys, it appears that NFP Securities may have been the only broker-dealer that ever offered the Hennessey Fund to investors around the country. The investigation has also revealed that the Hennessey Fund/Capital Solutions was a complicated and speculative investment. It appears that the Hennessey Fund’s investment strategy was to loan money to a third-party mezzanine real estate lender (at annual rates of 18% or greater), which, in turn, enabled the lender to make loans to real estate developer companies. Both the third-party mezzanine lender and the real estate developer companies were owned by the same person. According to the Claim, NFP Securities was aware of this structure.
The legal team of Vernon Litigation Group and the Law Office of Eric Norstedt continue to represent investors across the country who have suffered considerable losses from their investment in alternative investments such as the Hennessy Financial Monthly Income Fund LP, now known as Capital Solutions Monthly Income Fund, LP. If you are concerned about your investments with NFP Securities and the circumstances under which any of the investments were offered and sold to you, please call toll free either Eric Norstedt, P.A. at (239) 319-4434 or Vernon Litigation Group toll-free at (239) 319-4434 or by e-mail at info@vernonhealy.com or en@enpalaw.com.