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Masonic Fund Wins $39 Million Fraud Ruling

Observer-Dispatch (Montanette Murphy) April 10, 2009

An investment fraud attorney Thursday said that the nearly $40 million in damages and interest awarded recently to trustees of the endowment fund that supports Utica’s Masonic Care Community is a harbinger of things to come in the financial industry.

Merrill Lynch & Co. must pay for a subsidiary’s negligence in advising the Masonic Hall and Asylum Fund to purchase an interest in a business unit of a company that failed in 2005 over debt problems, according to a determination by a private organization that oversees disputes in the brokerage industry. The $39.8 million amount represents one of the largest securities arbitration awards in American history.

“Major brokerage firms and banks have been in the news for the last two years for causing this global meltdown, and there is no question that the arbitrators are going to take their fury out on the Merrill Lynches, Goldman Sachs, and Citigroups of the world,” said Andrew Stoltmann, an attorney with Stoltmann Law Offices in Chicago. Stoltmann said there are “trillions of dollars” in investment losses by investors whose money should have never been put in the toxic, high-risk investments recommended to them.

The Financial Industry Regulatory Authority ruling sends a clear signal that there is a real chance of monetary recovery for investors who have been defrauded, Stoltmann said.

“It’s a common misnomer that because someone is sophisticated or has access to sophisticated investment counselors, via attorneys or other sophisticated investment advisors, that they cannot recover in FINRA arbitrations, and that is categorically false,” Stoltmann said. “Whether you are Oprah, Bill Gates or the little old woman, you are entitled to honest, ethical investment advice.”

The authority decided that Merrill Lynch, based in New York City, is liable for $30.6 million in compensatory damages plus $9.2 million in interest since the Masonic Hall and Asylum Fund brought its claim in November 2005.

The Masonic Hall and Asylum Fund is the New York governing body for the local Masonic Care Community here in Utica. The Masonic Care Community’s 400-acre grounds are known to many Mohawk Valley residents as the home of the annual Boilermaker Health and Fitness Expo. But they also house an extensive web of care facilities for the elderly including skilled nursing care, short- and long-term rehabilitation, residential adult care and independent retirement living. There is also a child-care center on campus.

In all, about 650 people work for the care community. The endowment fund spent about $31.6 million for operations at the care community in 2006, according to the fund’s U.S. Internal Revenue Service Form 990 filing.

William Luley, executive director of the Masonic Care Community Home, said the Financial Industry Regulatory Authority ruling summed up the matter.

“We really have no comment to make,” Luley said. “On the advice of counsel, we have no comment.”

Stephen Donato, attorney for Masonic Hall and Asylum Fund, would not comment on the case.

Merrill Lynch spokesman William Halldin said the brokerage firm would try to recoup some of the money it was ordered to pay the Masonic Hall and Asylum Fund.

The brokerage didn’t own Advest Inc., its Hartford, Conn.-based subsidiary, until after it provided the improper investment advice to the Masonic fund, he said.

“We are disappointed with the decision, which we believe runs counter to the facts and the law,” Halldin wrote in an e-mailed response to questions.

According to Litigation Daily, the Masonic fund initially brought a civil claim in state Supreme Court. Merrill Lynch succeeded in seeking arbitration for the case. Arbitration hearings took place the week of March 9, news reports said.

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I hired Joe and his firm Stoltmann Law office to represent me in a case where my investment guy had lost a substantial amount of money in my account. He invested in some very speculative energy stocks which should not have been in my portfolio due to my request for a very conservative investment portfolio. I was very impressed and satisfied with the representation and negotiations on my behalf by Joe and Stoltmann Law offices and I would definitely recommend them to anyone who would be in need of a very fine firm. Anonymous
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