When two individuals from Burnham Securities purchased Fondinvest Capital last year it seemed the firm’s founder Charles Soulignac finally had a succession plan in place for his firm as he approached his 71st birthday.
In September, Hugh Dunkerley, then a director at Burnham Securities, said he had personally purchased the firm along with Dan McClory, who was serving as Burnham’s managing partner.
The transaction opened new horizons for Fondinvest, which had previously put its fundraising for Fondinvest X, its fifth secondaries fund, on hold.
The purchase would help restart fundraising efforts and Dunkerley and McClory’s Rolodex would open up a new pool of potential limited partners in the US and Asia, while Soulignac would remain in charge of managing the funds.
Now with the news that Dunkerley has left Fondinvest amid charges by the US Department of Justice of tribal bond fraud, the future of Fondinvest, which was founded in 1994, seems again uncertain.
According to a complaint filed in May by the US Securities and Exchange Commission, Dunkerley is accused of being involved in a complex scheme that centres on Jason Galanis, who controlled Burnham Securities, and his father, John Galanis, both of whom have previously been the subjects of SEC enforcement actions.
The complaint alleges that Dunkerley and six others, including Jason and John Galanis, organised a fraudulent scheme to obtain control of two registered advisors, Hughes Capital Management and Atlantic Asset Management, and dupe their clients into investing in sham Native American tribal bonds, which are tax exempt and are typically issued by Native American tribes to finance economic projects. In this case, the bonds were issued by the Wakpamni Lake Community Corporation, part of the Oglala Sioux Nation.
The regulator alleges that Dunkerley incorporated several entities that were set up to conduct the scheme. Jason Galanis allegedly compensated him for his role he knowingly assumed as one of the front-men and facilitators.
While Fondinvest is not named in the complaint, the case raises questions for the firm.
One is whether Dunkerley used fraudulent money from the alleged scheme to purchase Fondinvest. Nothing has been established on that front, but the SEC complaint indicates that he allegedly purchased a European fund of funds with the proceeds; it’s not clear whether this was Fondinvest.
It also remains unknown who, if anyone, has taken over Dunkerley’s stake in the company and whether McClory is still a shareholder. McClory and Dunkerley owned 100 percent of the firm’s share capital. McClory has moved on from Burnham Securities, taking a job as the head of China and West Coast equity capital markets at Bonwick Capital Partners in February, according to his LinkedIn profile.
There’s also the inevitable question related to fundraising. Although it’s unclear how much Fondinvest had raised for Fondinvest X when the news of the lawsuit emerged in May, it’s safe to say that limited partners will be reluctant to commit capital to a firm whose owner is under investigation.
For Fondinvest it will once again have to address the issue of succession as well as deal with any reputational fallout from the investigation.
Fondinvest and McClory didn’t return requests for comment. Dunkerley declined to comment.