A Naples-based investment advisory firm is facing several lawsuits, alleging negligence for recommending investors put their money in a now-defunct wealth fund steered by a man with a “disturbing background.”
Three similar lawsuits have been filed against QFA LLC in Collier Circuit Court by residents of the Naples area and Allen County, Indiana, and their related trusts and a limited partnership.
The suits stem from QFA’s ties to the Bighorn Wealth Fund, a multimillion-dollar pooled investment fund, and its chief analyst and trader, the late Michael Anderson, who was based in Vail, Colorado.
The plaintiffs allege they wouldn’t have been harmed if QFA had “properly and diligently vetted” Anderson before playing him up and recommending and selling the Bighorn fund to them.
“We are troubled by the fact that the remaining money has not yet been returned and we intend to pursue the remaining money, as well as all damages flowing from any harm suffered by my clients,” said Naples attorney Chris Vernon, who is representing the investors.
Jeffrey Neher, an investment adviser at QFA LLC, served as a managing member of the Bighorn Wealth Fund and co-adviser. He could not be reached for comment.
In an email James D. Sallah, a Boca Raton attorney representing QFA, said he hadn’t yet seen the lawsuits. He had no other comment.
According to the suits, QFA failed to uncover that Anderson:
» Had never attended Harvard University or obtained a master’s degree in business administration, as he represented
» Had no connections to the “Jaguar Fund” and never held a securities license
» Had filed for Chapter 7 bankruptcy in the past
» Had a judgment and a tax lien against him in the state of New York
» Had a sex offense that required him to register as a sex offender
» Had set up a fake third-party administrator to send Bighorn investors rosy weekly performance updates
Anderson and others pitched The Bighorn Wealth Fund to prospective investors as unique, with a strategy based on a “proprietary model” that constantly analyzed “a set number of inputs.” Investors were told the proven strategy had been around for more than 25 years and that it was most recently “implemented exclusively by a nonprofit foundation to manage their cash flow needs.”
Exchange-traded funds, like the Bighorn Wealth Fund, are built like mutual funds but trade like common stocks. The funds can include stocks, bonds, and more risky and exotic investments, such as precious metals or commodities.
The suits allege that QFA had a duty to determine if Anderson had actually developed a “proprietary short duration trading system” as early as the age of 22 as he claimed — and to analyze the system.
QFA represented that Bighorn produced returns of 21.7 percent in 2014 and 16.5 percent in 2015, according to charts provided to investors.
The U.S. Securities and Exchange Commission and police are investigating Anderson and his “business practices.”
Anderson, 47, was found dead in his home In February, with no foul play suspected. A few days after his death, two of the fund’s managing members from Florida found hard drives pulled from all the computers; documents destroyed, with pieces still hanging from the shredder; and client files missing.
Found by his wife in the garage of his million-dollar, mountain-view home, Anderson is thought to have inhaled excessive carbon monoxide from an ATV. A report from the Eagle County Coroner’s Office in Colorado listed the cause of his death as carbon monoxide toxicity and the manner of his death as undetermined.
According to the lawsuits, Bighorn was pitched as a low-risk investment that would be exited “in under 20 minutes” and returned to cash to eliminate risk to the portfolio, and that Bighorn’s goal was “to be in cash at the end of the trading day.”
Investors have more questions than answers about where their money went. The hedge fund lost more than $2 million in a single investment.
In his lawsuit, William Nicholas Wright, of the Naples area, said he put $3 million in the fund after attending QFA’s presentation about Bighorn at the advisory firm’s Naples office. He later made another investment of more than $800,000, using all of the money left in a charitable trust.
Similarly, Michael Kilbourn, from the Naples area, said he made two investments in Bighorn after attending a presentation at QFA’s offices, according to his lawsuit. But his investments weren’t as big.
First, Kilbourn invested $100,000, then a little over $103,000, he said.
James and Mary Beth Ash, of the Naples area, initially invested more than $1.2 million based on advice from Neher and made a follow-up investment of more than $200,000, according to their lawsuit.
Also, the couple said their son, Tim, from Indiana put in more than $1 million, for a collective total of more than $2.4 million from the three of them.
The plaintiffs in the trio of suits are seeking damages, costs and other relief — and they are demanding a jury trial. They have not received any of the remaining money in the Bighorn fund, despite repeated demands for their share of what’s left, Vernon said.
The number of investors in Bighorn is relatively small, maybe 15 or so, he said, but their individual investments are big. The three lawsuits are just a starting point, Vernon said.
“We’re not done. This is the first piece of what we intend to do,” he said.
A letter sent to investors a few days after Anderson’s death and obtained by the Daily News outlined reasons for serious concern about the fund and Anderson:
» Although the Bighorn fund promoted itself as going to cash at the end of each trading day 95 percent of the time, Anderson held a position in NUGT, an extremely volatile exchange-traded fund tied to gold. Designed for daily use, not as a buy-and-hold instrument, NUGT promises to deliver three times the “daily performance” of the New York Stock Exchange’s Arca Gold Miners Index. In theory this means if the index rises by 3 percent, the fund climbs by 9 percent; but if the index falls by 3 percent, the fund drops by 9 percent.
» Managing members of the Bighorn fund became aware of a trade in NUGT in mid-February, but Anderson reported it “continued to show upside potential according to his model.”
» When the investment in NUGT was closed out a few days after Anderson died, it resulted in a trading loss of $2.4 million.
» Two unauthorized money transfers totaling $1.2 million were made from a trading account to a bank in Iowa.
It’s unclear how much money was invested in the Bighorn Wealth Fund — or how big the fund grew. Within a few days of offering its first securities, the fund raised $9 million from 10 investors, with the first sale made June 28, 2016, according to an SEC filing. The minimum required investment was listed as $250,000.
In the letter sent to fund investors March 8, managing members said a trading account still had about $7.5 million in it and that nearly $160,000 sat in other bank accounts associated with the fund, including one at Regions Bank in Florida.
How exactly the fund unraveled is still being pieced together.
“The SEC is sifting through financial records and we are working our way through business transactions in town,” said Sgt. Luke Causey, a department detective with the Vail Police Department. “I think it will be a month or more before we get through everything.”