Opinion ID: 1448459
Heading Depth: 2
Heading Rank: 1

Heading: Hennessee Group's Pre-Investment Presentation to South Cherry

Text: Hennessee Group (or HG) is an advisor with respect to investments in hedge funds, i.e., private pools of capital collected from qualified investors. Defendants Elizabeth Lee Hennessee and Charles A. Gradante are HG's managing principals. HG describes itself as the Industry Leader: the most recognized hedge fund consulting firm in the industry, whose principals have testified before Congress on hedge fund issues. In 2001, South Cherry was inexperienced in investing in hedge funds. ( See Complaint ¶ 22.) At the request of one of South Cherry's creditors, HG made a presentation to South Cherry and its principal, Fred Groothuis, as to the HG process for evaluating hedge funds. The Hennessee Investor Presentation that was sent to South Cherry stated that [h]edge funds provide superior returns relative to risk; it emphasized HG's unique experience and expertise in evaluating hedge funds, stating that HG had 150 direct relationships with hedge funds, had [p]ersonal and professional relationships with all key managers in the industry, and review[ed] 550 [hedge funds] per month; and it extolled, inter alia, what HG called its proprietary data base and analytics, its five-phase unique due diligence process, and its [c]redibility with investors and industry professionals. According to the Presentation, HG considered only Hedge Funds With 3 Years Audited Track Record; its due diligence process with respect to such funds included the following five levels of scrutiny prior to its recommendation of such a fund for investment: (1) collection of information about the fund's manager; (2) assessment of the fund's Experience, Credibility, and Transparency; (3) interviews of hedge fund [p]ersonnel from the top down at the fund's offices to give HG a sense of overall professionalism, attitude and depth of organization; (4) study of the fund's [i]ndividual positions, with an emphasis on its long, short, cash, and derivative positions, as well as any [o]ff balance sheet transactions; and (5) review of audited financial statements, checks of the fund's key personnel's references, confirmation of the fund's prime banking relationship, and measures to Verify Auditor. The Presentation also stated that after a decision to invest in a given hedge fund, [m]onitoring the investment, once it is made, is equally important, and that Hennessee Group provided [o]ngoing and continuous quantitative and qualitative analysis and conducted On-Going Due Diligence. After receiving the Presentation from Hennessee Group, South Cherry and HG entered into an oral arrangement whereby Hennessee Group contracted with South Cherry that it would recommend to South Cherry suitable hedge fund investments which had passed every stage of Hennessee Group's detailed and rigorous five step due diligence process. In addition, Hennessee Group promised South Cherry that it would continue to perform on-going due diligence on investments South Cherry would make in reliance on Hennessee Group recommendations. In exchange, South Cherry agreed to pay Hennessee Group an annual commission of 1% of each hedge fund investment South Cherry made as a result of a Hennessee Group recommendation. (Complaint ¶ 45.)