A jury has found Twin Cities lawyer Todd Duckson liable for multiple violations of securities law in his role advising and running a Minneapolis investment fund that swindled hundreds of investors nationwide.
The real estate lending fund, first called Hennessey Financial Monthly Income Fund and then Capital Solutions Monthly Income Fund, attracted an estimated 450 investors altogether, including a number of elderly Minnesotans. Based in Minneapolis, it raised about $21.6 million during the time of the fraud, the U.S. Securities and Exchange Commission said.
Duckson, of Prior Lake, was one of several defendants in the securities fraud lawsuit the SEC filed in 2010.
After a five-week trial before U.S. District Judge Donovan Frank in St. Paul, a jury on Tuesday found Duckson liable on three claims: one of aiding and abetting, and two of securities fraud. The fund was also found liable for several violations.
A civil remedies hearing before Frank hasn’t been scheduled yet, but Duckson faces civil penalties, an order to return gains to investors and a bar from serving as an officer or director of a public company.
Federal regulators also plan to try to prevent Duckson from acting as a lawyer for public companies in which he would assist with any public filings, according to Eric Phillips, an SEC lawyer in Chicago who led the case against Duckson.
“Even though it seems unlikely investors will recover most of their losses, we hope this verdict will give them some measure of justice,” Phillips said in an interview.
Neither Duckson nor his lawyer, Larry Field, could be reached for comment.
Three other men targeted in the SEC lawsuit, California residents Michael Bozora, Timothy Redpath and Owen Mark Williams, settled before trial.
Duckson served as the fund’s counsel while working as a partner in the Minneapolis office of the national law firm Hinshaw & Culbertson. Duckson left the firm in 2009 and began running the fund. A private placement, the fund was supposedly open only to accredited investors with a net worth of $1 million or more.
The fund’s investments began tanking during the real estate crash and financial meltdown. However, the SEC said Duckson continued spinning the investment strategy to investors, drafting paperwork that misled investors about the fund’s deteriorating condition and what the money was being raised for.
Most of the fund’s mezzanine real estate loans went to a sole borrower, Hennessey Financial LLC, and ultimately financed real estate developer Jeff Gardner, who lived in the Twin Cities. Gardner’s companies built homes, townhouses, apartment buildings and waterfront property, among other things, primarily in Minnesota but also in Wisconsin, Kansas, Indiana and Florida, according to the SEC.
Mark Haggerty, a securities fraud attorney in Minneapolis, said Tuesday’s verdict doesn’t go far enough.
Haggerty represented five clients who invested in Hennessey Financial LLC, the fund’s borrower.
“So many people should have gone to jail in this case it’s unbelievable,” Haggerty said, referring to the cluster of entities affiliated with Duckson and developer Jeff Gardner. “I’m satisfied that something happened, as opposed to nothing.”
“There were a lot of people over 90 who invested their life savings in the group,” Haggerty said of the entities. “Anyone who would give them money, they would take it.”
Former Vikings tight end Stu Voigt managed Hennessey Financial Monthly Income Fund for a time, and was a key investor in and fundraiser for the borrower, Hennessey Financial LLC.
He was also the former chairman of First Commercial Bank in Bloomington, but the Federal Deposit Insurance Corp. barred Voigt from banking last year after he allegedly approved bank loans to Hennessey without disclosing his relationship to it.
Voigt’s solicitations for Hennessey Financial have also landed him in federal court with former Vikings teammate and friend Ron Yary, a football Hall of Famer now living in California.
Yary and others sued Voigt in 2011 for securities fraud related to Voigt’s fundraising for Hennessey Financial as a “risk-free” investment. The swindle cost an 82-year-old ticket taker at a Twin Cities movie theater his entire savings, according to the complaint.
That trial is slated to start in December in federal court in Minneapolis.