Stillwater Investors Launch Gerova Lawsuit

An investor has filed a lawsuit in the U.S. District Court for the Eastern District of New York on behalf of Stillwater Funds shareholders who exchanged their investments for shares of Bermuda-based Gerova Financial Group, Ltd. in a January 20, 2010 transaction.

According to the complaint the plaintiff alleges that Stillwater Capital Partners, Gerova and certain of their current and former officers and directors violated U.S. Federal securities laws and breached fiduciary duties by “failing to disclose material adverse facts” at the time of the share exchange.

This allegedly resulted in substantial losses for the Stillwater investors.

The U.S. Securities & Exchange Commission had expressed “serious doubts” about Gerova’s claims concerning the asset value of Stillwater, an American money management firm. At one point the $541 million value for Stillwater’s assets cited by Gerova equaled 98 percent of the Bermuda company’s market value on the New York Stock Exchange.  

The Stillwater Funds included in the lawsuit are:

• Stillwater Asset Backed Fund, LP,
• Stillwater Asset Backed Fund II, LP, a Delaware partnership
• Stillwater Real Estate Fund, LP, a Delaware partnership
• Stillwater WPB Venture Partners, LP, a Delaware partnership
• Stillwater WPB Venture Partners II, LP, a Delaware partnership
• Stillwater Market Neutral Fund, LP, a Delaware partnership
• Stillwater Market Neutral Fund II, LP, a Delaware partnership
• Stillwater Market Neutral Fund III, a Cayman Islands exempted company
• Stillwater Matrix Fund, LP, a Delaware partnership
• Stillwater Loan Opportunities Fund LLC, a Delaware partnership
• Stillwater Loan Opportunities Fund SPC, a Cayman Islands exempted company
• Stillwater Asset-Backed Offshore Fund, a Cayman Islands exempted company
• Stillwater Asset-Backed Fund SPV, A Cayman Islands exempted company
• Stillwater Asset-Backed Fund II Onshore SPV, a Cayman Islands exempted company
• Stillwater Trade Capital, LLC

Former Stillwater Funds investors are being asked to contact the Shareholders Foundation at mail@shareholdersfoundation.com or call +1(858) 779 – 1554 by May 23.

Earlier this year Forbes.com investor advocate Neil Weinberg exposed allegations Bermuda reinsurer and financial services company Gerova “was likely fraudulent.”

And last month he applauded the New York Stock Exchange’s decision in February to suspend trading in the company’s shares — but added the delisting won’t be the last of the bad news for those who have put money into the troubled company.

Mr. Weinberg, a Forbes senior editor who focusses on corporate crime and business ethics, first raised questions about Gerova’s ties to a $53 million Ponzi scheme shut down by the U.S. Securities & Exchange Commission.

Later, he provided widespread coverage on  a research report by Dalrymple Financial which described Gerova as “a NYSE-listed shell game”, claiming the Bermuda reinsurer had  allegedly overvalued the assets on its books and engaged in other fraudulent activity.

“Gerova Financial Group looks, for all intents and purposes, like a goner,” said Mr. Weinberg in a March commentary. “If only things were ever so simple in what are truly the bowels of Wall Street.

“When I first raised questions about Gerova’s ties to Ponzi scheme Westmoore Capital in a Jan. 5 post, Gerova was listed on the New York Stock Exchange with a $28 share price and a $750 million market value.

“The bad news about Gerova came out fast and furious in the wake of that story …  That included: allegations by short sellers that it is a ’shell game’; a ‘Wall Street Journal’ story raising doubts about it ties to Jason Galanis,  whom the Securities and Exchange Commission had fined and banned for five years from serving as an officer or director of a public company; a company announcement that it had hired Kroll to look into short-seller activity; and the decision by two consecutive CEO-designees to bail out.

“On Feb. 23 the NYSE halted trading in Gerova’s stock.  It’s last trading price:  $5.28.  Then came news that its pending mergers with securities firms Seymour Pierce of the UK and Ticonderoga Securities of the U.S. were off …

Mr. Weinberg said with a number of U.S. law firms announcing plans to investigate — and likely sue — Gerova on behalf of the Bermuda company’s clients and shareholders,  ”more bombshells appear inevitable for the unsuspecting who’ve gotten caught in this investor debacle.”

“[And] that’s not the end of Gerova’s legal problems,” said Mr. Weinberg. “Its own former law firm, Katten Muchin Rosenman LLP, also filed suit against it last month in US District Court for the Southern District of New York. Katten claims Gerova stiffed it on legal bills for $189,469.09.

“Technically, the company is still alive although it’s not trading anywhere, according to Thomas Mulligan of Sitrick and Co., which represents Gerova. Personally, I think the investing world would be a safer place if Gerova and those behind it left Wall Street.

“I’m not holding my breath. Just as players with ties to now-shuttered Ponzi scheme Westmoore Capital,  ended up at Gerova, my guess is that they’ll scurry off to other investment-related outfits and continue conducting business as usual.”

Gerova, which is headquartered in Cumberland House on Victoria Street, redomiciled to Bermuda from Cayman last year.

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