The marketing document also cited Taylor’s experience at Fannie Mae, the mortgage funding company that is now a ward of the government. As short-term funding manager at Fannie Mae, Taylor “was responsible for issuing approximately one trillion dollar [sic] in short term debt annually,” the document said.
In an e-mail, a Fannie Mae spokeswoman declined to comment on Taylor’s employment.
In presentations to Hillcrest’s board in 2008, Taylor and his associates said they used “a proprietary trading strategy,” the suit said.
“Gibraltar managers make money trading equity options in UP, DOWN or SIDEWAYS markets,” one of their PowerPoint slides allegedly said.
Hillcrest’s lawsuit says board members “asked probing questions” -- for example, how could Gibraltar produce such favorable returns in the weak financial markets of mid-2008, and if Gibraltar’s strategy was so good, why weren’t other investment advisers using it?
Taylor responded that the “covered call” strategy was very complicated, the suit said.
Reassured by Taylor’s talk of thorough market research and trading devices such as stop-loss mechanisms, the Hillcrest board decided to make a trial investment – a loan of $1.2 million, the suit said.
As Hillcrest viewed it, Gibraltar paid the monthly interest and passed the test. In hindsight, Hillcrest describes the trial period as a ploy to win its trust.
In early 2009, the suit said, Hillcrest made a series of payments increasing its investment to $8 million. The new payments were made via a “convoluted and complicated investment structure” Gibraltar had proposed involving three companies set up specifically for the purpose, and Hillcrest paid the final installment around May 13, 2009, the suit said.
But by April 2009, even before it put in the final $1 million, Hillcrest was concerned. The nonprofit had not received any monthly statements for the new account, and Taylor was refusing to provide them, the suit said.
When he finally complied in June 2009, the suit said, the statements showed that Taylor and Gibraltar had made wire transfers removing millions of dollars from the account.
“Perhaps I am not fully understanding what is going on here,” Hillcrest board member Elaine Crider wrote in a July 2009 e-mail to her colleagues, “however, why would our fund ever be below 8 million?”
“If our funds have gone below 8 million,” she added, “ it seems something is terribly wrong.”
In a July 2009 memo to the Hillcrest board, Taylor “admitted . . . to making numerous payments to himself and Gibraltar from the Trading Account as profits,” the suit said.
“Taylor closed the memorandum by stating, ‘we are confident that we can bring the account back to the $8,000,000 within the next 60 to 90 days,’” and he promised that Hillcrest’s money “will be paid back,” the suit said.