Greenwich financiers exonerated in dispute with Burlington heirs
Partners in a now-closed Greenwich private-equity firm have been exonerated of charges that they committed federal securities fraud.
The case was brought by members of the Milstein family, which founded Burlington, a retailer formerly known as Burlington Coat Factory that has southwestern Connecticut locations in Danbury, Stamford and Stratford. Bain Capital acquired the retailer in 2006 for more than $2 billion, with the founding family making around $1.3 billion from the sale.
Last week, a district court judge in Connecticut dismissed the plaintiffs’ allegations that they were defrauded by Foundation Capital Partners LLC, citing defendants as Dean Barr, Joseph Meehan, Thomas Ward and Joseph Elmlinger.
Barr launched Foundation in 2009, with Meehan, according to The Wall Street Journal. Barr had previously worked in senior management positions at Citigroup Inc. and Deutsche Bank. The two founders were also married to sisters, according to court documents, and eventually “developed ‘a dysfunctional rift and animus’ ” that would contribute to the firm’s strife, plaintiffs contended.
Foundation marketed itself as a firm that would invest in large and established hedge fund management companies. In 2014, members of the Milstein family invested $6.75 million in Foundation’s operations through an LLC called FIH.
By the time Foundation shuttered several years later, it had never closed a deal, according to The Journal. FIH sued Foundation’s partners, alleging its business was “terminally flawed” and the defendants had “misrepresented Foundation’s prospects and management.” FIH asked for its money back plus damages.
If convicted, the defendants faced millions of dollars in penalties, as well as being barred from the securities industry, according to Elmlinger’s defense attorney Jonathan Whitcomb, of Diserio Martin O’Connor & Castiglioni, which has offices in Stamford.
The case ultimately hinged on whether the court considered FIH to be a “sophisticated investor” with an ability to discern risky investments. The summary judgment cited numerous examples of the plaintiffs’ investment backgrounds and found that they should have had the ability to evaluate the “merits and risks of any investment.”
The “sophisticated investor” concept and its implications in legal disputes is an “evolving area of law,” Whitcomb said, adding, “It’s been around for a while, but it’s becoming more crystallized.”
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