It's a name that rarely makes my ma$$ media and is absent from my history books.
"Here, an heiress says, her millions dwindled" by Shirley Leung | Globe Staff, September 27, 2013
Open up case number 12-4630 in Suffolk Superior Court and the cast of characters streams out like an Agatha Christie mystery: there’s the Swiss heiress, a baron from one of the world’s oldest banks, the former gatekeeper to MIT’s intellectual riches, and arguably the most famous professor at Harvard Business School.
At the center of it all is a nondescript Fall River company, Continuum Energy Technologies, where researchers are trying to fulfill an ancient desire to achieve what many consider an impossible feat: changing the properties of matter.
The heiress, Corinna von Schonau-Riedweg , has sunk $77 million of her fortune into that venture and others related to it, but now she believes she was duped. She accuses her private banker, Baron Wilfrid von Plotho, of giving her bad advice when he invested her money in those companies.
Von Schonau is suing Rothschild Bank of Switzerland, von Plotho, and the two most unlikely players in this drama: former MIT administrator John Preston, who cofounded Continuum, and Harvard’s Michael Porter, who chairs its board. The heiress alleges their fraud and mismanagement have whittled her investments down to about $50,000....
* * *
Corinna von Schonau was born rich, but did not know it.
She grew up comfortably middle class, and it was only when her mother died in 2002 that she discovered a trust stuffed with shares of Novartis, the Swiss firm that is one of the world’s largest pharmaceutical companies. The stock came from her grandfather, whose drug company Geigy, eventually became Novartis. At the age of about 50, von Schonau had hundreds of millions of dollars.
Von Schonau needed financial advice, and she turned to Rothschild Bank executive Baron Wilfrid von Plotho and his wife, whom she knew socially.
This is reminiscent of the Madoff affair, and do I really care what money-junkie scum ripped off a fellow elite?
Rothschild Bank is part of a powerful financial empire, an institution that dates back more than 200 years. It counted Queen Victoria among its distinguished clients, and for a long time, it set the daily price of gold.
Based on Rothschild’s sterling reputation, von Schonau hired von Plotho to manage millions of her Swiss francs. According to the lawsuit, von Plotho convinced her, while she was still grieving over the loss of her mother, to sell a large portion of her Novartis shares because she needed to diversify her holdings. The shares were transferred to Rothschild. Eventually, she would set up six accounts investing in everything from European bonds to high-risk private equity ventures.
Among those private equity placements was John Preston and Michael Porter’s company, Continuum Energy Technologies in Fall River. It’s a business Preston started in 1999 with Christopher Nagel, an MIT-trained scientist.
On its website, Continuum describes itself as “a world research leader in electromagnetic tailoring of ordinary materials to develop extraordinary properties.” In other words, it aims to change the properties of matter.
It may sound like medieval alchemy, but Continuum scientists, including a Nobel Prize winner, published research showing they could magnetize copper. While there is no market for magnetized copper, the experiment showed they could change the properties of elements. For example, Continuum could produce an enhanced copper that could be a better conductor of electricity, a product that would have commercial potential.
“It is not alchemy,” said Kevin Welch, the company’s executive vice president, during a recent tour of Continuum.
“On the one hand, it is gratifying,” he said of the company’s cutting-edge research. “On the other hand, it is problematic. Nobody believes what you’re doing.”
It is, indeed, hard to believe that the world of science could be turned upside down in a brick building in an industrial section of Fall River. On a recent visit, Continuum headquarters, a warren of offices and labs, sat largely empty and quiet, with about 20 employees, primarily dedicated to research and development.
However fantastical Continuum’s concept sounds, it has attracted real money — nearly $50 million, said Welch — as well as some heavy hitters as advisers. Preston himself served as director of technology development and licensing at MIT, acting as gatekeeper for the commercialization of the intellectual riches coming out of a university known for its research. Harvard’s Porter is considered one of the greatest business gurus of our time....
Welch said the company could be 18 to 24 months away from releasing a preliminary product.
“Anyone who has invested in Continuum has not lost a dime,” he said. “We want all of our investors, Corinna included, to do well. We want their loyalty and vision to be rewarded.”
Chasing big investment returns can require patience. In this case, the company needs to be able to replicate the experiment and commercialize it. But the heiress didn’t think it would take this long.
She first got interested in Continuum a decade ago, when her banker introduced her to Preston. She even made three trips to the scruffy city of Fall River to check out the company....
All told, the heiress put in about $14 million in Continuum, making her one of the biggest investors, but she received only about 2.5 percent of shares outstanding, the suit alleges. In court testimony, a lawyer for the company said her sharehold was based on the value of Continuum at the time.
The heiress wouldn’t get on the phone to talk about what happened, but in a statement she said: “I was advised by my bank and one of its senior officers that I needed a diverse, conservative investment portfolio that would provide security for my family.”
“My trust was bolstered by the professional reputations of the people behind these investments: I believe anyone would have trusted the advice of MIT’s former Director of Technology Development and Michael Porter, a world-class Harvard economist. I am stunned by how this all turned out.”
Preston and Nagel, the Continuum executives named in the suit, deny any wrongdoing.
Porter referred questions to Preston.
Preston, in a statement, said he will address the heiress’s claims in court. “I am deeply offended by Ms. von Schonau’s allegations and deny them wholeheartedly. I have given my best to every company I have been associated with, and have always put shareholder interests’ first.”
In all of this, what did the heiress’s banker think of these investments?
Von Plotho made multiple trips to Massachusetts to meet with Preston to vet the investment opportunities, bringing the heiress along about a half-dozen times. Through these trips, von Schonau grew to trust Preston, who during this time was also a lecturer at MIT. Preston often put her up at his home and entertained her at the Black Rock Country Club in Hingham, according to court testimony.
Von Plotho encouraged her to pour more money into Continuum as well as other companies involving Preston. He “assured her that the investments were not risky and told von Schonau that the investments would be profitable,” her suit says.
In 2008, he recommended that she put $25 million into Preston’s C Change Investments and later make a $15 million loan to the Cambridge firm. He also advised her to invest $5 million in another Preston company, a Texas outfit that converted waste materials into synthetic gas, according to court documents.
Her suit now values those investments as worthless. A review of C Change financial records revealed the company paid high salaries — $500,000 to over $1 million per partner, including to Preston — and spent lavishly on an office in Cambridge. The Texas company filed for bankruptcy in 2011.
For his advice, von Schonau paid von Plotho $18.5 million in shares from the three companies, as well as an annual consulting fee of roughly a half-million dollars, according to court papers. She learned later that Continuum, after bringing her in as an investor, awarded von Plotho share options in the company and a seat on the board, according to her suit.
As a result of her banker’s advice, the heiress’s high-risk private equity investments ballooned to 40 percent of her holdings instead being limited to 5 percent, court documents say. “Von Plotho preyed on von Schonau’s grief and known inexperience” with money, according to the suit.
Von Plotho, who spent much of his career at Rothschild, has since retired. In court this week, where attorneys argued over jurisdiction and the statute of limitations, his lawyer, Michael Kendall, a partner at McDermott Will & Emery, said during the course of a nine-year relationship, von Plotho had a good track record with the heiress. He made 32 private equity and venture capital investments all over the world, including in Libya and China, and von Schonau is only complaining about three of them.
“The rule of thumb is that 90 percent are losers,” Kendall said of high-risk investments.
The heiress also blames Rothschild Bank for not being a better steward of her money and for failing to properly monitor von Plotho. “We categorically reject the accusations that have been made against Rothschild,” said bank spokesman Kilian Borter in a statement.
Had the heiress left her money in Novartis shares, it would have swelled to about $80 million, according to court documents. Even with her losses, von Schonau remains well-off.
So is this a case of an heiress who lost patience with an ambitious company, or was she blinded by the glitter of fool’s gold? In the world of high-risk investing, it’s all a gamble.
--more--"
