April 24–An Eagle couple trusted him for years to guard their nest egg. But in a flash, he lost $2.5 million of their retirement savings by using it to bet on the volatility of U.S. stock markets.
That’s what Joseph Daines, a retired orthopedic surgeon, and his wife Susan allege in a lawsuit against local investment adviser Mark Matsko and his firm Selway Asset Management.
The Statesman obtained a copy of the lawsuit through the federal court system and reached out to the Daineses’ attorney and to Matsko. Matsko has not responded to voice or email messages from the Statesman. He and Selway were recently notified of the lawsuit and have not yet filed their response in court.
Here is what the lawsuit alleges:
The Daineses first met Matsko in the late 1990s, through Joseph Daines’ medical practice pension plan. Matsko began managing their retirement fund, which eventually grew to about $3 million. In the years that followed, Matsko ran Selway as an investment advisory firm and also ran something called the Talon Fund, a hedge fund.
He approached the Daineses in 2009 about investing in Talon. The starting investment was $250,000, according to an archived version of the now-defunct Talon Fund webpage.
The Daineses started their Talon investment in late 2009, shortly before Joseph Daines retired from his medical practice. They followed Matsko’s advice again in 2011, investing another $1.7 million in Talon.
Matsko assured them that “their money would be safe in Talon and not subject to any greater risk than in a traditional IRA or similar investment portfolio,” the lawsuit says. But it was totally unsuited to being a stable source of income for a couple of retirees, the lawsuit claims.
The Daineses “relied upon [Matsko’s] investment expertise as their investment adviser when he told them that Talon would be a good investment option for them,” the lawsuit says.
Matsko gave the couple paperwork that warned Talon investors “must have no need for liquidity from the investment” — that they should be ready to have their Talon investments tied up for a while. But, they argue, they weren’t sophisticated investors and relied on Matsko’s assurances that their retirement was safe, the lawsuit says.
The Daineses asked Matsko “repeatedly” for the past three years to shift money out of Talon and into a more traditional investment account, the lawsuit says. Each time, Matsko “either acknowledged that he would do so, or gave evasive answers about Talon’s performance and the benefits of staying invested there,” the lawsuit says. He never shifted their money as requested, they said.
Meanwhile, their retirement savings were being used to make riskier trades, the lawsuit says.
When the Daineses joined Talon in 2009, the fund had $36.6 million in assets, with about 60 percent invested in stocks. But in more recent years, Matsko shifted into what the lawsuit calls “speculative, gambling-style trading” with a high risk.
“By December 2016, Talon held $28 million in assets, but only 13.9 percent of its assets were stock,” the lawsuit says. “The remaining holdings were options contracts and other leveraged financial instruments.” By December 2017, Talon was 5.2 percent stocks.
Matsko had shifted to putting Talon’s money in complex financial products, such as those whose value depends on how volatile the market is on a given day.
“No longer did Talon have an underlying equity value: the right set of price moves in the financial markets could reduce the value of its holdings to zero,” the lawsuit says.
That’s what happened two months ago when U.S. stock markets took a dive, with the Dow Jones in early February plummeting by more points in a single day than ever before. Talon became worthless overnight, the lawsuit says. The Daineses lost their $2.5 million, or about three-quarters of their retirement funds.
Patrick Bageant, one of the lawyers for the Daineses, said this isn’t a case of “buyer beware” where a consumer should have done more homework. It’s “a situation when someone had consulted an expert and was following an expert’s advice,” he said. “You never say ‘buyer beware’ to your doctor’s advice.”
Bageant doesn’t know who had invested the rest of the money that was in Talon’s control. (If the fund was still the same size in February as it was two months prior, there would have been about $25 million from other investors.) He believes there were 15 or 16 other investors in Talon.
He said the Daineses are “looking forward to resolving this as efficiently as we can.”
The Daineses argue that Matsko and Selway are liable for the losses. They allege securities fraud, breach of contract and breach of fiduciary duty by Matsko and Selway.
Audrey Dutton: 208-377-6448, @audreydutton
(c)2018 The Idaho Statesman (Boise, Idaho)
Visit The Idaho Statesman (Boise, Idaho) at www.idahostatesman.com
Distributed by Tribune Content Agency, LLC.