The Orbitex Focus 30 Fund is hoping to file a countersuit against an individual who named the fund in an amended lawsuit filed earlier this year. A motion was filed July 13 in the 13th Circuit Court in Hillsborough County, Fla., seeking the court's approval to file the countersuit.
The countersuit accuses Edward Semlitz of self-dealing and failing to properly supervise the actions of Vector Index Advisors, a mutual fund advisory firm in Tampa, Fla. of which Semlitz owned shares and served as corporate director. The motion to allow the suit's filing was made on behalf of the fund by the law firm of Glenn Rasmussen Fogarty & Hooker of Tampa.
The countersuit initiated by the fund could back up some of the claims of Vector and its former president, Steven H. Adler, against investors who have sued him and Vector Investors, claiming that Vector and Adler defrauded them by using their money, which they said was intended to be invested in the ASM Index 30 Fund, the sole mutual fund advised by Vector, to invest in the adviser itself. But, Vector and Adler claim that investors knew exactly what they were investing in.
Last year, Vector and Adler were named in two separate lawsuits initiated by 13 individual investors. According to Vector and Adler, the investors held stakes in the now defunct mutual fund advisory firm that filed for bankruptcy last year. The investors charge that Vector and Adler misappropriated assets that they intended to invest in the ASM Index 30 Fund.
On July 18, the SEC charged that Vector and Adler had misappropriated $2.2 million, using mutual fund investors' assets to pay company and personal expenses. The Vector investors claimed that they had thought they were sending assets to Vector to have the adviser manage a market timing investment program for them, according to the SEC complaint.
The lawsuits and the SEC action are pending.
The Orbitex fund's involvement in the current legal tangle with Vector and the investors stems from its taking over the management of the ASM Index 30 Fund in March 1999. The mutual fund had originally been managed by Vector. (MFMN 5/10/99) But, concerned about financial troubles from which Vector was suffering and rumors of allegations by investors against Adler and Vector of misappropriation of assets, the ASM fund's directors asked Orbitex to assume management of the $29 million mutual fund. In February 1999, the directors then terminated the fund's advisory contract with Vector. The fund was merged into the newly-created Orbitex Focus 30 Fund in July 1999 after shareholders approved the change.
The Orbitex countersuit charges that Semlitz, a former director of Vector and long-time friend of Adler's, took financial advantage of the struggling mutual fund advisory firm. The suit alleges that Semlitz engaged in an elaborate plot to route $400,000 withdrawn from a pension plan for which Semlitz acted as trustee through Vector to his own personal bank account to avoid paying taxes on the proceeds. The countersuit claims that Semlitz needed the money to pay his personal income taxes.
The countersuit claims that Semlitz put the pension plans' participants at considerable risk and charges that Semlitz, not Adler, voluntarily solicited other investors to join him in making investments in Vector - investments that eventually evaporated when the fund adviser filed for bankruptcy last year.
The lawsuit Orbitex intends to file is without merit, said Robert Hearn , a lawyer with Zuckerman, Spaeder, Goldstein, Taylor & Kolker of Tampa, the firm representing Semlitz. He declined further comment.
The Orbitex countersuit was filed in response to a lawsuit filed in the same court in June 1999 by Zuckerman, Spaeder, which represents a group of 10 plaintiffs including Semlitz. The investors charged Vector and Adler with fraud in connection with sizeable investments they contend they made and lost in the ASM Index 30 Fund. The fund was a mutual fund introduced in 1991 that tracked the Dow 30 index.
The investors alleged that Adler never invested their assets in the ASM Index 30 mutual fund, but instead, used the investment proceeds to pay the fund advisory firm's expenses. They also charged that Adler and Vector sent them phony monthly account statements tracking the progress of their non-existent mutual fund investments. The investors also charged that Adler actively solicited them to become investors and misrepresented the parameters of their investments to them.
A second lawsuit making similar claims was filed in the same Hillsborough County, Fla. court in May 1999 by two other former Vector investors. An attorney representing those two investors did not return a call seeking comment.
The original suit filed on behalf of the ten investors named just Vector and Adler as defendants. But in an amended lawsuit filed on February 9 of this year, the plaintiffs also named Orbitex because it was the successor management company to the ASM Index 30 Fund. The fund's original transfer agent, Mutual Fund Service Co. of Ohio was also subsequently named as a defendant because of several liquidations investors contend the firm processed without their knowledge or consent.
The four independent trustees who served on the original board of directors for the ASM Index 30 Fund, who fired Vector as the fund's adviser and turned over the fund's management to Orbitex, were also later named as defendants in the amended complaint. The trustees had been charged with breaching their fiduciary duty.
But, two of the directors have since had their claims dismissed, according to Hearn. On June 22, a district court judge ruled that the sole claim against the two other independent fund directors was inappropriate, although the judge has allowed the plaintiffs additional time to amend their complaint against the trustees.