GenSpring Family Offices is accused of failing to diversify a $30 million portfolio after misrepresenting that the hedge funds it recommended would perform like bonds, according to the law firm Vernon Healy.

An investor has filed an arbitration claim against the Florida-based multi-family office after being told his portfolio would lose 10.4 per cent in a worst case scenario. In the event, the trust lost nearly $2.5 million more than it would have if the bond portion of the portfolio had been invested in accordance with the signed investment contract, according to the claim.

In a meeting, GenSpring senior representatives told the investor that the firm does not believe in bonds and instead uses low-volatility hedge funds with bond-like risk for the bond portion of its clients' portfolios, the claim states.

"These funds had a severe lack of transparency and control, and it's apparent that GenSpring could not adequately determine what strategies they were following despite GenSpring's representations to the contrary," said Ed Dovin, securities attorney with Dovin, Malken & Ficken, one of the law firms behind the claim.

Dovin, Malkin & Ficken has previously secured a $1.3 million arbitration award against GenSpring in an arbitration before JAMS, when the arbitrator found that the firm breached its fiduciary duty when it used hedge funds instead of bonds for much of the bond risk portion of the investor’s portfolio.

The other law firm involved is Florida-based Vernon Healy, which has acted on behalf of Lehman note investors.