Yankees Great Sues Advisers Over $11M Investment Losses
By Nathan Hale
Law360, Miami (October 14, 2014, 9:06 PM ET) -- Retired New York Yankees star Jorge Posada and his wife, Laura, sued their former financial advisers Monday in Florida court, claiming at least $11.2 million in damages as a result of fraud and misrepresentations leading to a series of ill-advised investments, such as backing a speculative real estate development.
Defendants Juan Carlos Collar and Anthony Fernandez allegedly established a close relationship with the Posadas in the late 1990s, before Jorge had established himself as an all-star and signed a four-year, $52 million contract. The advisers then took advantage of that trust and the couple's inexperience with investing to steer them into overly risky investments in endeavors started by the advisers themselves, and often into paying exorbitant fees to them, the suit claims.
"Collar and Fernandez continuously established and maintained investment portofolios that were composed of overly concentrated, risky and unsuitable investments, made material misrepresentations and omissions concerning the recommended investments, and placed their interests ahead of the Posadas' interests," the complaint said.
The Posadas closed their accounts with the advisers around September 2010, but they say they did not understand the nature of the allegedly fraudulent conduct until recently.
The case brings claims including breach of fiduciary duty, negligence, fraud and unjust enrichment, as well as violation of several state laws regarding misrepresentations, omissions and suitability of investment recommendations.
"Notwithstanding that plaintiffs' stated investment objectives were conservative long-term growth and preservation of capital, defendants invested the plaintiffs' retirement assets in portfolios that were too risky and not diversified," the suit said.
When the parties first met, Collar and Fernandez worked in a partnership at Merrill Lynch Pierce Fenner & Smith Inc., according to the complaint. They had worked with several other baseball players and their families before, spoke fluent Spanish - Jorge and Laura Posada grew up in Puerto Rico - and soon were like family, according to the complaint.
The Posadas say they relied heavily on Collar and Fernandez's services, since they were inexperienced with investing, Jorge was busy traveling and focusing on baseball during the season, and Laura was running a foundation they had started and raising their family, including a son who needed extensive medical care.
The couple followed Collar and Fernandez when they left Merrill Lynch in 2005 and became one of the first clients of their new investment advisory firm, Coral Gables, Florida-based Quantum Ventures LLC, according to the complaint.
Soon afterward, however, the pair started the Posadas down a path of questionable investment choices, the suit claims.
The first step was a $3 million investment in Sunset Trails, a speculative real estate development started by Collar and Femandez that drew investments from several baseball players for a purported plan to buy land and build a wealthy equestrian community near Lake Okeechobee, according to the suit.
Collar and Femandez lacked experience in real estate and did not invest any of their own funds into Sunset Trails, the Posadas say.
Some $2.2 million of the roughly $7.7 million raised from their clients is unaccounted for, the suit says. And in what is described as one of the pair's "mast egregious acts as registered investment advisers," they allegedly had Posada sign an unlimited agreement to guarantee another $8 million borrowed to rnake up the difference on the allegedly inflated $13.5 million price they paid for land for the project, the suit says.
Also, despite putting up $3 million of the $5.5 million down payment on the land, the Posadas received only a 38.8 percent membership interest and no actual ownership interest, the suit says.
Collar and Fernandez also allegedly failed to meet their fiduciary duties to disclose substantial fees they received for the land purchase.
Difficulties with the Sunset Trails project led Collar and Fernandez to form another entity, Pioneer Nova, also based solely on investments from several baseball players, to pay off the Sunset Trails mortgage, according to the complaint.
The Posadas invested another $2 million, with Jorge again unknowingly signing an unlimited continuing guarantee agreement, they say.
The suit claims Collar and Femandez directed the Posadas into another unsuitable investment when the advisers had them put $8.1 million - approximately 48 percent of their investment assets - into their Quantum Hedge Fund, former in 2007.
In addition to being a risky investment, the hedge fund represented a conflict of interest for Collar and Femandez, who collected substantial salary and fees from its investors, according to the suit. With substantial loss of value to the fund, the Posadas personally suffered losses of at least $4.8 million, they say.
"In essence, Collar and Fernandez intended to create an annuity for themselves by promoting and selling a high-risk hedge fund with no track record, rather than merely recommending a balanced and diversified portfolio of bonds and equities to Jorge and Laura," the suit says.
The suit seeks compensatory damages and prejudgment interest, plus legal costs, and also reserves the right to bring punitive damages if further evidence arises.
Collar and Femandez could not be reached for comment Tuesday.
The Posadas are represented by Joshua A. Katz of Sallah Astarita & Cox LLC and Barry R. Lax and Sandraw P. Lahens of Lax & Neville LLP.
The case is De Posada et al. v. Collar et al., case number 2014-26233-CA-01, in the Circuit Court for the Eleventh Judicial Circuit of Florida.