CINCINNATI - The victims of Glen Galemmo, who allege they lost up to $300 million in a Ponzi scheme, return to a Hamilton County courtroom next month to confront a basic question: Are they more different than alike?
It’s an important question in terms of whether the court case proceeds as a class action, in which all plaintiffs pursue fraud claims against Galemmo as a unified group. Alternatively, Hamilton County Judge Carl Stich could allow individual cases to be litigated against Galemmo, the East Walnut Hills money manager who has been accused of orchestrating an elaborate Ponzi scheme in which more than 150 investors lost up to $300 million.
The hearing was rescheduled last week to allow more time for lawyers to prepare. It’s now slated to happen Nov. 13.
In recent court filings, attorneys promoting a class action lawsuit say common themes apply to all plaintiffs and the case can be handled more efficiently as a single action. On the other side, attorneys argue a class action would needlessly complicate the case and that the stories of Galemmo’s victims are more different than alike.
The court filings offer an intriguing look at how investigators say Galemmo gained the trust of investors by targeting friends, parishioners and members of his social network.
“Investors were propositioned to invest through different means,” said one recent filing. “These included phone calls, one-one-one conversations at bars, and from the sidelines of their children’s athletic events.”
The filing, by attorney Brian O’Connor at the Santen & Hughes law firm, describes how Galemmo promised different returns to different investors, told some he would invest in penny stocks; others, junk bonds.
Investors: No Red Flags
More than 30 of Galemmo’s investors have been identified to date, including John Rush, who told WCPO he met Galemmo at Maketewah Country Club 15 years ago. Rush said Galemmo found his investors through social networking at Maketewah, St. Mary parish in Hyde Park, in the local AAU basketball community and Moeller High School.
Galemmo's attorney, Ben Dusing, declined to comment on the money manager's recruiting practices, but stressed that Galemmo is cooperating with the lawyers and federal investigators now probing his past. No criminal charges have been filed.
The IRS has confirmed it is conducting a fraud and money-laundering investigation against Galemmo.
"However this shakes out, there is no question that Mr. Galemmo feels bad that investors suffered loss," Dusing said. "To the extent that he can assist them in helping recoup their loss within the confines of his present legal situation, he'll endeavor to do that."
WCPO spoke with several investors, but Rush was the only one who agreed to talk on the record. Others corroborated his point of view.
“I had no reason to distrust him,” said Rush. “That’s part of the genius of Glen Galemmo. He was able to present himself in a way that you could trust him.”
For Rush, that trust was gained over time. He started with small investments that performed well but were not outlandish.
“I was getting anywhere from 8 percent to 21 percent,” Rush said. “Things started escalating in 2009 (but) the overall market was doing well. There was nothing beyond the pale. You’ve got articles out there talking about huge returns. I never saw that.”
What Rush did see was behavior that built his confidence in Galemmo.
There were casual remarks about how Goldman Sachs was investing with him, or JP Morgan, or how the Securities and Exchange Commission would audit him every year. That made Rush think his money was safe. Over time, his investment level grew, providing cash for Moeller tuition and other expenses. Rush won’t give details on the extent of his gains and losses, but says he never withdrew more from his IRA and investment accounts than he contributed to those accounts.
That’s an important issue in the civil case because Rush is a proposed class representative, a plaintiff who would represent other investors if the case proceeds as a class action.
'Embarrassed And Ashamed'
Another investor who was initially proposed as a class representative, Michael Willner of Orange County, Calif., also has been named as a defendant in the Galemmo case because he referred clients to Galemmo and is alleged to have made more money than he lost by investing with Galemmo.
“To those of you who I brought into the fund: You have my deepest and most sincere apologies,” Willner wrote to Galemmo investors in a July 19 email, attached as evidence in a Sept. 30 court filing. “I am embarrassed and shamed by my actions. Like most of us I ignored the poor statements and lack of transparency in favor of the high returns. In hindsight these warning signs should have alerted me to probe deeper and ask appropriate questions.”
Rush said he feels terrible for Willner, a man he describes as “a genuinely good person” who made the same mistake he did: “He trusted Glen Galemmo 100 percent.”
Another investor, Richard Morris of Greenville, S.C., is alleged to have recruited investors for Galemmo. Morris and Willner were compensated for those referrals, according to O’Connor’s Sept. 30 filing.
In addition, Galemmo’s wife, Kris, is alleged to have recruited investors. The former teacher at St. Mary School in Hyde Park was known as “Kris the closer” because of her role of soliciting investments, the filing states.
“We knew her as Kris the teacher, not ‘Kris the Closer,’” said Marianne Rosemond, principal at St. Mary School. “She was really well liked.”
The scandal hasn’t interfered much with this year’s routine at the Hyde Park school, Rosemond said.
Aside from the families who invested directly with Galemmo, those impacted most at the school were students, parents and staff who were close to Galemmo’s wife. Kris Galemmo taught second grade at St. Mary and would have been back this year if not for the allegations against her husband, the principal said.
"Kris Galemmo had absolutely nothing to do with the operation of these funds," said Galemmo's attorney Dusing. "Any suggestion to the contrary is quite simply factually false."
Dusing recently filed a challenge to a federal forfeiture action in which the U.S. Attorney’s office is trying to seize about $3.5 million in Galemmo family assets, including a Cincinnati home, Florida condo and Keybank account jointly owned by the couple.
“She is an innocent owner of the property,” attorney Dusing wrote on Kris Galemmo’s behalf. “She had no knowledge of the conduct giving rise to the forfeiture.”
Roller Derby Team An Unlikely Victim
Rosemond’s comments underscore that not every victim was an investor.
The Black-n-Bluegrass RollerGirls of Northern Kentucky had to hustle to find different locations for home games after Galemmo’s Midwest Hoops sports complex closed in late July.
“It just messed everything up because it was short notice,” said Richelle Davis, the team’s public relations director who skates under the name Silverose.
The roller derby team had several of this season’s games scheduled at the Boone County facility, Davis said.
“We had to scramble to find a different venue because they ended up laying off all their staff and shutting down,” she said.
Now the team is trying to figure out where it will skate for home games next season, she said.
The Black-n-Bluegrass RollerGirls practice at Ollie’s Skate Park in Florence, and the team is trying to determine whether it could move its games there, too, she said.
“Right now, we’re kind of in limbo,” Davis said.
That’s where West Chester investors Richard and Gail Thomas find themselves, too.
They lost “the bulk of their life savings” by investing $680,000 with Galemmo this year, according to a Sept. 12 court filing. The Thomases are seeking to have their case separated from other defendants because they had less opportunity to uncover Galemmo’s alleged fraud. Their most recent investment came on June 3, when court documents indicate the Internal Revenue Service first raided Galemmo’s offices. That was followed by a July 17 email to investors in which Galemmo disclosed his companies had been shut down by the IRS.
“It would be unfair to allow a commingling of (the Thomas’) assets with other investors with longstanding interaction with defendants,” attorney William Flax argued in the Sept. 12 filing.
As the civil suits proceed in Hamilton County and the IRS continues its money-laundering probe against Galemmo, Rush said victims of the fraud are processing the emotional toll of the scandal.
“Yeah, we lost a lot of money, but I think the real loss that I felt was just betrayal,” he said. “I really thought I knew him.”
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