Hagens Berman currently represents the Cornerstone Alternative Fixed Income Fund, LP (“CAFIF” or the “Fund”) in a case alleging that the fund’s investment advisor (Cornerstone Advisors, Inc.), and certain of its employees and affiliates, performed inadequate due diligence prior to investing more than $25 million of CAFIF’s money in: 1) notes issued by various Meridian Funds (the largest Ponzi scheme in the history of the Pacific Northwest); and 2) the FutureSelect Prime Advisor II, LLC Fund, which was almost entirely invested in Bernard L. Madoff Investment Securities (the largest Ponzi scheme in the history of the world), according to a complaint filed in the Superior Court of Washington. The case has been moved to arbitration pursuant to provisions in the fund’s operating documents, and is scheduled for a final hearing in May 2013.
The case has been brought as a derivative action by limited partners of CAFIF seeking to recover losses on behalf of CAFIF. Any net recovery, after the costs of bringing the action, will increase the value of the investment in the fund owned by each of the fund’s limited partners.
Cornerstone Advisors, Inc. and the other Respondents in the action are now seeking to limit the recovery available to CAFIF, asserting that the current derivative claimants cannot bring claims to recover losses for investments made by CAFIF prior to the date they invested in CAFIF (approximately July 1, 2008). If Cornerstone Advisors, Inc. and the other Respondents are successful in this motion, the damages potentially available to CAFIF if successful at the arbitration hearing will be decreased by many millions of dollars.
However, an investor that purchased its interests in CAFIF by April of 2008 may be able to be added to the case to resolve any such issues and allow CAFIF to seek the maximum amount of damages at the hearing. Although there is no guarantee of success at the hearing, if Cornerstone Advisors’ current motion is granted, the related potential damages to CAFIF will likely be lost forever.
