Suits Say Hedge Fund Lied To Investors After Facebook Fiasco

, Daily Business Review


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When Facebook Inc. announced its plan for an initial public offering in 2011, irrational exuberance for the stock of the social media website was an understatement.

Gignesh Movalia tapped into the consensus that Facebook's $16 billion stock offering—one of the largest IPOs ever—would be easy money and attracted more than 300 investors around the country to invest in his Tampa-based OM Global Investment Fund LLC, an unregistered hedge fund.

But lawsuits in Miami-Dade Circuit Court by an investor and in federal court by the Securities and Exchange Commission allege Movalia lied to investors.

A court-appointed monitor was named for OM Global Investment Fund in the state action, and clawback lawsuits are being filed that could set a precedent in the area of unjust enrichment, according to the attorneys for the monitor .

Miami attorneys Jeffrey Schneider and Patrick Rengstl, partners with Levine Kellogg Lehman Schneider + Grossman, represent the court-appointed corporate monitor, Jim Sallah, in the lawsuit against OM Global before Miami-Dade Circuit Judge Daryl Trawick.

Sallah is a partner with Sallah Astarita & Cox in Boca Raton.

"We found a bunch of things Movalia was doing badly. He was loaning investors' money to friends and affiliated companies," Rengstl said. "He told them he would own it in their name, control it in their name and it would be separated from other investors. As it turned out, none of it was true."

The lawyers alleges OM Global was an affinity fraud since the victims were almost exclusively wealthy individuals of Asian descent, like Movalia and his director of investments, Edwin V. Gaw.

"Gignesh was basically looking to invest in a lot of tech companies, and the hot company in 2011 was Facebook," Schneider said. "He was very connected with Indian-Americans with high net worth, individuals who were doctors and bankers and well known."

Schneider and Rengstl charge OM Global Fund lost a total of $9 million of the $14 million invested in it.

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