When a District-based children’s charity was trying to shelter its endowment from the stock market turmoil of 2008, Garfield Taylor offered what seemed to his prospective clients like a can’t-lose proposition.
Taylor and his firm, Gibraltar Asset Management Group, pitched a complex investment strategy that would generate an annual return of 20 percent without jeopardizing the money invested, according to Hillcrest Children’s Center.
“The beautiful thing about our equity option trading strategy is that we totally control our downside risk,” Hillcrest alleges that Gibraltar said in a slide presentation. The charity’s principal, one of the slides allegedly promised, “will stay intact.”
But by mid-2009, Hillcrest made a startling discovery. As it said in a court filing, the vast majority of the $8 million it had invested with Taylor was gone.
Hillcrest was one of about 130 investors in what the Securities and Exchange Commission now alleges was “a classic Ponzi scheme” – a financial scam built on illusion. Last week, the SEC sued Taylor for fraud, saying that he blew clients’ money on risky trades and misappropriated millions.
Hillcrest’s plan to build a larger facility ground to a halt, and its ability to aid troubled D.C. families faced new limits.
“I was devastated,” Juanita Price, Hillcrest’s executive director, recalled in an interview this week.
Hillcrest has survived its financial setback, but the money it lost would have enabled it to do more to help people in need, said Price, who joined the nonprofit after it had decided to invest with Taylor.
Founded two centuries ago to care for orphans, Hillcrest provides mental health and other social services. On the eve of Thanksgiving, staff members were delivering holiday food baskets to needy families, Price said.
Hillcrest put its story on the public record in January, when it sued Taylor for fraud. By then, of the $8 million it had invested with Taylor -- about half of its endowment -- only $200 remained, according to the lawsuit.
Two months ago, a court clerk declared Taylor in default in the Hillcrest suit, saying he apparently had not defended himself in the litigation. According to court records, mail sent to Gibraltar Asset Management Group was returned as undeliverable.
No one answered the door Friday at the North Bethesda address listed for Taylor in the Hillcrest and SEC lawsuits. Someone retrieved a note The Washington Post left there, but no one responded.
An upset client told the SEC about the possible scam a year ago, according to a lawyer and a financial adviser assisting the investor. The SEC’s civil complaint against Taylor and his firm gives no indication that any new investors were drawn in since then. The fraud, which was under way by 2005, collapsed in fall 2010, the SEC said.
SEC official Stephen L. Cohen said the case serves as a reminder to investors.
“There really isn’t any such thing as . . . an investment that has zero risk with a high reward,” Cohen said.
The Hillcrest board, whose members had no special experience managing institutional investments, identified potential investment advisers through personal acquaintances, the nonprofit group’s lawsuit said. One member of the board had invested with Taylor.
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