Death and money apparently don't mix.
On Sept. 14, Wisconsin regulators sued the Wisconsin Funeral Directors Association Inc. and Fiduciary Partners Inc., trustee of the $48 million Wisconsin Funeral Trust, alleging that the two organizations invested the money improperly. The
trust has a potential long-term deficit of $21 million, and nearly $6 million in investor funds already has been lost, according to the complaint.
Not named in the suit was a former star broker from Morgan Stanley Smith Barney LLC, Michael Hull, who, along with his brother Patrick Hull — also a former rep at MSSB — began managing the prepaid funeral
trust at its inception in 1999. The Hulls, who now operate bluepoint Investment Council LLC, continued to manage the
trust until Sept. 14, when a circuit court judge appointed a receiver to take over liquidation of the fund.
SETTING UP SHOP
Michael Hull said he was not being investigated by Wisconsin regulators and that he was fired from MSSB in April when the firm learned about his plans to set up his independent registered investment advisory firm.
The brothers launched bluepoint in June.
MSSB spokeswoman Christine Jockle declined to comment on Michael Hull's termination. Patrick Hull was not fired by MSSB.
According to his record with the
Financial Industry Regulatory Authority Inc., Michael Hull was “discharged,” or fired, by MSSB in April due to “allegations relating to [the] financial adviser's involvement in outside investments that were not approved by the firm.”
“We believe [the termination] had to do with setting up bluepoint, which MSSB found out about,” Michael Hull said. When asked if the firm's actions were in retaliation to the new venture, he said: “It sure seems like it to us. That's our belief.”
He added that state regulators had recently examined his new firm and that he was prohibited from commenting about the funeral directors association.
Michael Hull has been listed among Barron's top 1,000 investment advisers, and his MSSB office reportedly managed as much as $3.8 billion for wealthy families, foundations and endowments.
In their suit, Wisconsin regulators allege that the association and trust “have treated the trust's assets as a
hedge fund, improperly investing depositors' money in a portfolio of high-risk, illiquid investments.”
The trust is not structured as a typical trust with a separate legal existence. Instead, it is “actually an investment product owned by” the Wisconsin Funeral Directors Association,” and the portfolio is inconsistent with the trust's stated objective of providing investors with the “low and secure rate of return of 1% more than the state average three-year CD rate,” according to the complaint.
Trust assets include options, hedge funds, international equities, a wholly owned life insurance subsidiary and other investments.
A spokesman for the Wisconsin Department of Justice declined to comment on the investigation, except to say it is continuing.
“The fact that this complaint has been filed does not rule out other options for addressing irregularities with the trust,” department spokes-man Steve Means said.
CLIENTS SUPPORTIVE
Michael Hull said that a significant portion of his personal clients have moved their assets to the new firm, though he declined to elaborate.
“A number of clients have called us in support,” he said. “Nothing in the legal filings brings into question our management of the fund.”
A call to the Funeral Directors Association wasn't returned.
Peter Rogers, president of the trustee, Fiduciary Partners Trust Inc., said that it had no involvement in managing the trust's investments.
“Fiduciary Partners is not, and never has been, involved in deciding how any funds are invested on behalf of the [Wisconsin Funeral Director Association's] trust or in marketing the trust to funeral directors and consumers,” he said in a statement. “Those are and always have been responsibilities of the [Wisconsin Funeral Directors Association] and the investment management firms it has hired.”
