Federal District Court Refuses to Dismiss Suit Against Hedge Fund MB Investment Partners’ Controlling Persons for Ponzi Scheme Committed by MB’s President and Co-Managing Partner, Mark Bloom

On June 10, 2010, the United States District Court for the Eastern District of Pennsylvania took the first step in dealing with the legal fallout to the hedge funds connected with disgraced hedge fund manager and convict Mark Bloom.  Bloom, as President, Co-Managing Partner, Chief Marketing Officer, and Director of hedge fund MB Investment Partners, Inc. (MB), used his influence in that firm to obtain investors for his personal investment vehicle, North Hills Management, LLC and North Hills, LP, and enhanced stock index funds through which he operated a Ponzi scheme.  Seeking restitution, a number of Bloom’s victims (Plaintiffs) brought suit against Bloom, MB, Centre MB Holdings, LLC (CMB), which owned MB and controlled its operations, Center Partners Management (CPM), which owned CMB and shared directors with MB, Robert Machinist, the Chairman, COO, Co-Managing Partner and a Director of MB, Ronald Altman, a Partner, Senior Managing Director and Portfolio Manager at MB, and seven other directors on MB’s board (Defendants).  The District Court refused to dismiss the causes of action against the officers and directors of MB, including those based on “Controlling Person Liability” under Section 20(a) of the Securities Exchange Act of 1934, as amended, and based on “negligent supervision” for their failure to properly supervise and uncover the fraud committed by Bloom, and through him, MB.  It did, however, dismiss all claims against portfolio manager Altman, notwithstanding allegations that he failed to perform due diligence in recommending the victims invest with Bloom.  We detail the background of the action and the Court’s legal analysis.

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