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Barry Belmont, et al v. Mb Investment Partners

January 5, 2012


The opinion of the court was delivered by: Schiller, J.


"Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy." This quote from Warren Buffett nicely sums up the above-captioned case. From all accounts, Mark Bloom was an intelligent, energetic money manager. Unfortunately, he was also a thief. While working for Defendant MB Investment Partners, Inc., he used his intelligence and energy to run a side project that turned out to be a Ponzi scheme. Plaintiffs in this case, Barry Belmont, Philadelphia Financial Services, Thomas Kelly, Jr., Frances Kelly, and Gary Perez, were victims of Bloom's fraud. They sued Defendants in an effort to recover some of the losses they suffered at the hands of Bloom. Presently before the Court are Defendants' motions for summary judgment. For the reasons that follow, the motions are granted.


A. The Players

Defendant Centre Partners Management, LLC ("CPM") is a Delaware limited liability company that provides advisory and management services for various private equity investment funds, each of which is structured as a limited partnership and composed of outside investors. (Centre Defs.' Statement of Undisputed Facts in Supp. of Their Mot. for Summ. J. [Centre Defs.' Facts] ¶ 1; Pls.' Statement of Additional Facts in Opp'n to Defs.' Mots. for Summ. J. [Pls.' Additional Facts] ¶ 1.) These private equity investment funds own Centre Pacific Holding, LLC. (Centre Defs.' Facts ¶ 2.)

Defendant MB Investment Partners, Inc. ("MB"), where Bloom was working while he simultaneously operated a Ponzi scheme, was an investment advisor previously known as Munn Bernhard & Associates, Inc.*fn1 (Pls.' Additional Facts ¶ 10.) Defendants Robert Machinist and Bloom had an opportunity to purchase MB and approached CPM about teaming up after their purchase to buy other investment advisor firms; CPM, however, preferred to be involved with the purchase of MB from the beginning. (Centre Defs.' Facts ¶¶ 11, 14-15.) On July 30, 2004, Bloom and Machinist, along with CPM, were among those who invested $14 million in Munn Bernhard & Associates, Inc. (MB Defs.' Statement of Undisputed Facts in Supp. of Their Mot. for Summ. J. [MB Defs.' Facts] ¶ 8; see also Pls.' Additional Facts ¶ 3; Centre Defs.' Facts ¶¶ 16-17.) Bloom and Machinist formed Defendant Centre MB Holdings ("CMB"), a limited liability company, to acquire an interest in non-party MB Investment Partners & Associates, LLC, which wholly owned MB. (Centre Defs.' Facts ¶¶ 6, 18; see Pls.' Additional Facts ¶ 5.) Thus, Centre Pacific Holding, LLC invested funds in MB through CMB. (Centre Defs.' Facts ¶ 3.) Centre Pacific Holding, LLC was the largest shareholder of CMB, followed by Machinist and Bloom. (Id. ¶ 7.)

Bloom signed an Executive Employment Agreement with Munn, Bernhard & Associates, Inc., effective July 30, 2004, which named him as a Managing Director, Vice President, Secretary, and Treasurer of MB. (MB Defs.' Facts ¶ 9; MB Defs.' Mot. for Summ. J. Ex. J [Bloom's Executive Employment Agreement].)

CMB designated Defendants Bloom, Machinist, Lester Pollack, William Tomai, and Guillaume Bebear as directors of MB. (Centre Defs.' Facts ¶¶ 10, 23-24; Pls.' Additional Facts ¶ 13.) Pollack is also the founder and chairman of CPM, while Tomai is CPM's chief administrative and financial officer, and Bebear is a senior director at CPM. (Centre Defs.' Facts ¶ 10.) Machinist was the CEO of MB, a position he retained until he was replaced by Michael Jamison in 2008, and a member of its board of directors. (Pls.' Additional Facts ¶¶ 13, 19.) Defendants Christine Munn, Thomas Barr, and P. Benjamin Grosscup also served as MB directors. (Id.) As part of the MB purchase, Defendant Robert Bernhard resigned as a director of MB and ceased to serve as an executive officer of MB.*fn2 (MB Defs.' Facts ¶¶ 11-12.)

All of the Plaintiffs invested money with Bloom's North Hills, L.P. Between 2006 and 2008, Bloom solicited Plaintiffs to invest approximately $4.4 million in the North Hills, L.P. (MB Defs.' Facts ¶ 7.) Plaintiffs Belmont and the Kellys also invested with MB and had an advisory agreement with MB. Plaintiffs Philadelphia Financial Services ("PFS") and Perez never entered into a written advisory agreement with MB. (MB Defs.' Facts ¶ 72.)

B. North Hills

Bloom was a certified public accountant and senior tax partner at BDO Seidman from 1979 to 1992 and again from July 2001 to November 2003. (MB Defs.' Facts ¶ 1.) Bloom joined WG Trading Co., a hedge fund, in 1992, where he stayed until July 1, 2001. (Id. ¶ 2.) Upon leaving WG Trading Co., Bloom assumed control of two entities affiliated with WG Trading Co.: North Hills Partnership, L.P. and North Hills Management, LLC. (Id. ¶ 5.)

1. The Entity

North Hills, L.P. was formed in 1995 as a privately offered investment vehicle for a limited number of accredited investors. (MB Defs.' Mot. for Summ. J. Ex. C [North Hills PPM].) The North Hills, L.P. private placement memorandum describes North Hills, L.P. as a New York limited partnership and as "a private investment partnership that acts as an investment management intermediary, investing the Partnership's capital in carefully selected investment partnerships and separately managed accounts." (Id.) The private placement memorandum states that North Hills Management, LLC is North Hills, L.P.'s sole general partner. (Id.) The private placement memorandum also states that Bloom is the sole principal of North Hills Management, LLC and that the general partner "has sole authority over selection of investment managers for [North Hills, L.P.'s] investments and the allocation and investment of [North Hills L.P.'s] assets." (Id.) The general partner possessed full authority to make and execute all investment decisions on behalf of North Hills, L.P. and to conduct the business of North Hills, L.P. (Id.) North Hills L.P.'s office was at "c/o Mark Bloom, 502 Park Ave New York, New York 10022." North Hills Management, LLC, as general partner, reserved "the right to reject any subscription in whole or in part" and was the only entity "authorized in connection with this offering to give any information or to make any representations other than as contained in this memorandum." (Id.) Bloom, as managing member of North Hills, L.P., was "responsible for overall planning as well as supervising and selecting investment managers." (Id.) Bloom maintained "full and complete authority with respect to the management and control of the business operations and all other aspects of the Partnership." (Id.) "If for any reason [North Hills, L.P.] were to lose the services of Mark E. Bloom, the principal of the General Partner, the Partnership might have to be liquidated." (Id.)

Generally, an investor was required to post a minimum initial capital contribution of $250,000 into the fund and meet certain prerequisites to be deemed an "accredited investor" permitted to invest. (Id.) Nowhere in the private placement memorandum is MB, CMB, or CPM mentioned, nor are the names of the any of the individual Defendants other than Bloom referenced.

2. The North Hills Fraud

Bloom was arrested on February 25, 2009. (MB Defs.' Facts ¶ 65.) The Information against Bloom charged him with securities fraud, mail fraud, wire fraud, money laundering, and obstruction of tax laws. According to the Information, Bloom was the sole owner of North Hills Management, LLC. (Centre Defs.' Mot. for Summ. J. Ex. 13 [Information] at 1.) North Hills Management, LLC, in turn, was the sole General Partner of North Hills, L.P. (Id.) From July 2001 through February 2009, Bloom defrauded North Hills, L.P.'s investors by "soliciting millions of dollars of funds under false pretenses, failing to invest investors' funds as promised, and misappropriating and converting investors' funds to [his] own benefit and the benefit of others without the knowledge or authorization of the investors." (Id. at 1-2.) Bloom told the investors that North Hills, L.P. would invest in different hedge funds and management investment vehicles, while minimizing risk and maximizing return. (Id. at 2.) Investors poured in millions of dollars to Bloom to invest, but instead he diverted at least $20 million from the North Hills, L.P. operating account, an amount much greater than he was entitled to in management fees and shares of profits. (Id. at 3.) He used the investors' money to renovate a house and apartments he owned, to buy art and jewelry, and to go on lavish vacations. (Id. at 4.) Bloom also invested a significant sum of North Hills, L.P.'s investors' money with the Philadelphia Alternative Asset Fund, an entity with which Bloom had a referral agreement. (Id. at 4-5.) These investments were made without Bloom disclosing his conflict and in contravention of the diversification strategy Bloom laid out to investors of North Hills, L.P. (Id. at 5.) The assets of Philadelphia Alternative Asset Fund were frozen when it was discovered that the company and its president had engaged in fraud. (Id.) After Bloom was forced to disclose North Hills, L.P.'s investment in a fund that had its assets frozen, several North Hills, L.P. investors sought to redeem their investments. (Id.) Bloom could not honor these requests, however, because he had already diverted most of their money for his personal use. (Id. at 5-6.) Bloom lied to investors about the progress of litigation involving the Philadelphia Alternative Asset Fund. (Id.) In 2007 and 2008, Bloom solicited more money for a new class of shares in North Hills, L.P., but rather than invest the money as he had promised, he used this new influx of cash to honor prior redemption requests. (Id. at 6.) Bloom also regularly misrepresented the financial condition of North Hills Management, LLC, including by sending investors false monthly account statements. (Id. at 7, 9.)

On July 30, 2009, Bloom pled guilty to all of the charges in the Information. (Centre Defs.' Mot. for Summ. J. Ex. 14 [Guilty Plea].) In Bloom's own words, "I violated the securities laws by creating a scheme to defraud the investors in North Hills Fund and by sending communications to investors in North Hills that contained both false representations and material omissions with respect to the manner in which their money was being invested and as to the amount of money that was in their accounts." (Id.) He admitted to diverting money from investors to himself for his personal use and to operating a Ponzi scheme. (Id.)

On the same day he was arrested, Bloom was fired from MB. (MB Defs.' Facts ¶ 66.) MB ceased operations on June 30, 2009. (Id. ¶ 68.) Following Bloom's arrest, the Securities and Exchange Commission investigated MB, but, to date, has taken no action ...

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