Salomon Melgen, the Florida eye doctor whose relationship with Senate Foreign Relations Committee Chairman Robert Menendez, D-N.J., is now the subject of a grand jury investigation, has left a trail of lawsuits over bad investments, including one involving a government contract in which he had attempted to tie his money to the coattails of another prominent Hispanic official.
Melgen, who has a port security firm in the Dominican Republic that Menendez denies he tried to help and a medical practice in Florida that the senator admitted he aided, has filed numerous lawsuits over other business dealings that went sour. The paper trail suggests that the litigious ophthalmologist whom Menendez claims as a friend is a high-rolling risk-taker with a self-promotional flair who is not averse to using government connections as part of his investment strategy.
Some of the cases in which Melgen, his wife and his principal investment vehicle, SFM Holdings have been plaintiffs:
- In June 2012, they sued Bank of America, claiming that they "suffered over ten million dollars in damages" from the concurrent swoon in Bank of America's stock; their claims, now part of a larger suit against the bank, are pending.
- In July 2011, they sued CitiGroup, whose falling stock price during the financial meltdown cost the couple $32 million, according to Melgen's complaint. Those claims are still in litigation.
- Among his more complex cases, one that has resulted in six separate lawsuits and three appeals, are a series of complaints that started in 2005, when the Melgens lost $15 million in the KL Fund Ponzi scheme that defrauded investors out of as much as $195 million. In an attempt to recover their money, they sued the three operators of the scheme. Then they sued Bank of America, which provided brokerage services to an account Melgen set up and turned over to one of the architects of the Ponzi scheme. Then they sued another victim of KL Funds who had also lost $150 million in Bernard Madoff's swindle. A federal judge dismissed the suit against Bank of America; the Melgens and their investment company have appealed. The case against the fellow victim, Nine West founder Jerome Fisher, is still pending in Florida state court.
Melgen's investment track record has not been stellar–in 2000, its first full year of operation, SFM Holdings lost $14 million, which led to the ophthalmologist's first dispute with the IRS, which he settled by paying a tax bill of $2.7 million.
Given that history, it's not surprising that Melgen looked for a safer bet. According to a lawsuit he filed in May 2011 in the U.S. District Court of Southern Florida, he thought he'd found one in the connected world of government contracting. In February 2009, Melgen claims he met Florencio Rendon, a former chief of staff to Rep. Solomon Ortiz, D-Texas. Rendon, whose boss was a member of the House Armed Services Committee before losing his seat in 2010, "touted his ability to put deals together and to win federal and state government contracts," Melgen said in his lawsuit.
By the summer of 2009, Melgen claims he was on the receiving end of a hard charging sales pitch to invest $3 million in a company Rendon recommended, Securiforce International of America LLC. The company was seeking all or a portion of an Army contract worth $400 million called TWISS, or Theatre Wide Internal Security Services. In a June meeting, Rendon insisted that "through his government contacts" he "could obtain government contracts," according to the complaint, which goes on to note that Melgen was led to believe that "this was a rare investment opportunity and worth millions."
Rendon cited his relationship with Lt. Gen. Ricardo Sanchez, the former commander of the coalition ground forces in Iraq from June 2003 to June 2004, and mentioned other government connections who could assist him in securing contracts. Melgen claimed he was told that Sanchez was an investor in Securiforce, "and that this would help secure the TWISS contract."
With so many government connections pulling for Securiforce, Melgen apparently couldn't say no. But a few weeks after he signed an August, 2009 agreement and invested $1.5 million, with a promise to invest $1.5 million more, the Army did say no to Securiforce. It awarded the TWISS contract to five other firms.
Not only did Securiforce fail to win the contract, it appears not to have deposited the funds in the account specified in the investment agreement Melgen signed, at least according to the lawsuit he filed. When the ophthalmologist asked for his money back after Securiforce failed to win the contract, Melgen claims he was told that the company "spent all the money."
Later Steven Brierley, the managing director of Securiforce who took part in the June 2009 sales pitch, allegedly told Melgen he used $600,000 of the money to pay a personal tax bill. Melgen also learned that Sanchez, the former Iraq commander, was not an investor in the company, and that Rendon was on retainer to drum up investors for Securiforce.
Throughout the filings in his lawsuit against Brierley, Rendon and others associated with his Securiforce investment, Melgen repeatedly stresses that he relied on their assurances that their knowledge of the defense industry and government connections would provide a lucrative stream of contracts. The complaint also alleges that the defendants took advantage of him–"a doctor, not a businessman or attorney," by changing the deal just before he signed it, offering different terms than those that had been discussed.
The same histrionic tone runs throughout a website that calls attention to another of Melgen's lawsuits, this one occasioned by his loss at the hands of three self-styled investment experts who actually ran the Ponzi scheme known as the KL Fund, that had defrauded 178 investors out of $165 million by the time it collapsed in 2004. Melodramatically titled "An American Tragedy," the page says that the "world-reknowned" Florida ophthalmologist "lost $15,000,000 due to a forged document and the sheer negligence of one of American's biggest banks."
The website describing his case adds that in addition to pursuing legal remedies to recover his $15 million, Melgen "is taking this case to the U.S. Senate Banking Committee in an effort to urge them to consider convening a special hearing" about Bank of America Securities. Sen. Robert Menendez is a member of the committee.
As to his Securiforce investment, the complaint was voluntarily dismissed in Nov. 2011. In the investment agreement he signed, Melgen agreed to submit to mediation and arbitration in Dallas rather than turn to the courts over a dispute. Melgen, Brierley, Rendon, their companies or their attorneys did not respond to requests for comment.