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SJC-11743

            MOLLY A. HAYS    vs.   DAVID J. ELLRICH & others.1



            Suffolk.      February 3, 2015. - June 10, 2015.

  Present:     Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk,
                             & Hines, JJ.


Uniform Securities Act. Securities, Sale. Fraud. Fiduciary.
     Limitations, Statute of. Evidence, Fraud. Practice,
     Civil, Fraud, Statute of limitations.



     Civil action commenced in the Superior Court Department on
September 11, 2006.

    The case was heard by Christine M. Roach, J.

     The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.


     David B. Mack (Stephanie R. Parker with him) for the
defendants.
     Patrick J. Dolan for the plaintiff.


    GANTS, C.J.        In January, 2001, in reliance on the advice of

her investment advisor, the plaintiff, Molly A. Hays, invested

    1
       Morgan Financial Advisors, Inc. (MFA), and U.S. Bank
National Association (U.S. Bank). U.S. Bank is not a party to
this appeal.
                                                                    2


approximately three-quarters of her retirement savings in a

hedge fund that became insolvent in 2003, resulting in the loss

of her entire investment.    In 2006, Hays filed suit in the

Superior Court, alleging that her investment advisor, Morgan

Financial Advisors, Inc. (MFA), and David J. Ellrich, the sole

owner and officer of MFA, had, among other claims, violated the

Massachusetts Uniform Securities Act (act), G. L. c. 110A,

§ 410 (a) (2), committed fraud, and committed a breach of their

fiduciary duty to her.    After a jury-waived trial, the judge

ruled that Ellrich and MFA were liable under § 410 (a) (2), and

entered judgment in Hays's favor for $381,354.80 plus

interest.2,3   MFA and Ellrich appealed, and we transferred the

case to this court on our own motion.

     On appeal, Ellrich and MFA claim that they were not

"sellers" of securities within the meaning of § 410 (a) (2), and

therefore cannot be liable under the act.    They also argue that


     2
       The trial on liability proceeded against MFA only, because
David J. Ellrich had previously been defaulted for failing to
appear at a hearing on his attorney's motion to withdraw as
counsel of record, despite having been ordered by the court to
appear at the hearing, and despite having been notified by his
counsel of the date of the hearing.
     3
       The trial judge also found in Molly A. Hays's favor on her
common-law claims of fraud and breach of fiduciary duty, and
entered judgment "consistent with, but not duplicative of," the
statutory count under G. L. c. 110A, § 410. The judge found in
favor of the defendants on breach of contract claims and an
estoppel claim.
                                                                    3


the claims on which Hays prevailed are barred by the statute of

limitations.   In addition, they contend that the judgment must

be vacated because it is contrary to the great weight of the

evidence.4   We affirm the judgment.

     Background.   We summarize the findings of fact made by the

judge, supplemented where necessary by uncontested evidence in

the record that the judge implicitly credited.   See Commonwealth

v. Isaiah I., 448 Mass. 334, 337 (2007), S.C., 450 Mass. 818

(2008).   We reserve certain facts that directly relate to the

legal issues we address.

     In approximately 1991, when Ellrich was employed by another

investment advisory firm, Hays and her husband retained Ellrich

as an investment advisor to manage some of their funds.    Before

her husband's death in 1993, Ellrich communicated almost

exclusively with Hays's husband, and rarely with her.     Shortly

after her husband's death, Hays met with Ellrich to discuss the

management of the individual retirement account (IRA) she had

inherited, which totaled approximately $310,000 at the time.

Hays told Ellrich that she needed income but wanted to remain at

home with her five year old daughter.5   Ellrich told Hays, who



     4
       Ellrich also claims that it was an abuse of discretion for
the trial judge to deny his motion to set aside the default.
     5
       Hays had worked for Pan American Airlines as a flight
attendant until approximately 1991. She has a bachelor's degree
                                                                     4


was forty-one years old in 1993, that she could elect to make

periodic withdrawals from the IRA without a tax penalty at the

maximum rate permitted under § 72(t) of the Internal Revenue

Code -- seven per cent per year at the time.6    As a consequence,

Hays's investment portfolio needed to achieve an average annual

rate of return of more than 11.75 per cent:     seven per cent to

cover the withdrawal rate, plus inflation, which averaged

approximately three per cent, plus Ellrich's management fee of

1.75 per cent.   From 1993 to 1999, Hays directed Ellrich to

employ a "moderate growth and income" investment strategy, which

he implemented, maintaining an equities-to-fixed-income ratio of

approximately seventy-five per cent to twenty-five per cent.

Ellrich pursued a "market-timing" strategy for the equities

portion of Hays's investment account, which, by 2000, was

invested in funds at Rydex Series Trust (Rydex) and at Profunds

Investments (Profunds).   He pursued a "buy and hold" strategy

for the fixed income portion, which was invested in long-term

investment vehicles maintained by Fidelity Investments

(Fidelity).7   Hays had no investment experience and had relied



in English Literature from the University of South Florida and a
master's degree in Library Sciences.
     6
       The wisdom or accuracy of this advice is not at issue in
the case.
     7
       With a "market-timing" strategy (in contrast to a "buy and
hold" strategy), an investor actively trades investments to time
                                                                    5


upon Ellrich as her financial advisor since her husband's death;

during that time period, she made no investment without

Ellrich's advice.

     In 2000, after Ellrich had registered MFA as an investment

advisor, Hays transferred her accounts to MFA, and executed

first a portfolio management and services agreement and later a

superseding investment advisory agreement with MFA.   MFA was

designated as the registered investment advisor on all of Hays's

accounts, which totaled approximately $470,000 at the end of

2000.

     Also in 2000, Ellrich was approached by Richard Furber

about becoming the investment advisor to Convergent Market Funds

(Convergent), a new "hedge fund" Furber was creating.8    Ellrich

agreed in September, 2000, to become the investment advisor to

one or more Convergent funds, and MFA executed an investment

advisor agreement with Convergent's general partner, Emerging

Health Capital Partners LLC (EHCP).   Ellrich determined that, as


the rise and fall of the markets. According to financial
statements Ellrich prepared for Hays, Hays's accounts at Rydex
Series Trust, Profunds Investments, and Fidelity Investments
together made up more than ninety-nine per cent of Hays's net
worth.
     8
       A "hedge fund" is a "specialized investment group --
[usually] organized as a limited partnership or offshore
investment company -- that offers the possibility of high
returns through risky techniques such as selling short or buying
derivatives." Marram v. Kobrick Offshore Fund, Ltd., 442 Mass.
43, 46 n.5 (2004), quoting Black's Law Dictionary 727 (7th ed.
1999).
                                                                     6


Convergent's investment advisor, he would no longer "have the

time or resources" to perform market-timing services for

individual accounts, and needed to terminate MFA's advisory

business for all of his individual market-timing accounts.      In

December, 2000, he spoke with each of his approximately 150

individual clients, including Hays, to tell them that those

services would be terminating as of December 31, 2000.

    During Ellrich's conversation with Hays, he explained to

her that he was going to be the investment advisor to a new

private fund, and encouraged Hays to transfer her funds to

Convergent, telling her that he would personally be making the

trades for Convergent and would employ the same strategies and

techniques that Ellrich had always employed for her accounts.

Ellrich did not explain to Hays what a hedge fund is or the

distinctive risks of investing in a hedge fund.   He did not

speak with her about whether, in light of those risks, such an

investment would be suitable for someone relying on her

investments to produce a fixed income.   He did not tell her that

he had no experience trading for a private equity fund, or that

Convergent had no track record.   And he never provided Hays with

a "full and practical explanation of . . . how the historical

role he had played as Hays'[s] investment advisor would change,"

never telling her that he would no longer be considering her

individual needs in making trades for Convergent.   The judge
                                                                   7


found that, "by a combination of his words, his manner, and his

tone, Ellrich strongly implied to Hays . . . that Convergent

would be a suitable investment for her."9

     Hays told him that she wanted to invest in Convergent,

relying entirely on Ellrich's encouragement.   Nearly seventy-

five per cent of Ellrich's individual market-timing clients also

decided to invest in Convergent, contributing all but $30,000 of

the $16.5 million that Convergent initially raised.

     In December, 2000, EHCP sent a package of materials to

Hays, including an offering memorandum for Convergent

securities.   The first pages of the offering memorandum warned,

"AN INVESTMENT IN THIS PARTNERSHIP INVOLVES A SIGNIFICANT RISK

OF LOSS," and, "AN INVESTOR MUST BE IN A POSITION TO BEAR THE

ECONOMIC RISK OF AN INVESTMENT IN THE PARTNERSHIP FOR A

SIGNIFICANT PERIOD."   The offering memorandum identified EHCP as

the general partner of Convergent and MFA as Convergent's

investment manager, and disclosed the management fee MFA would

be receiving from the general partner.   It specified

Convergent's investment goal as an "annual rate of return of at

     9
       Ellrich testified that he merely identified Convergent
Market Funds (Convergent) for his clients as an option for them
to consider, and that he informed Hays that he could not advise
her whether to invest in Convergent because it would create a
conflict of interest where he was Convergent's investment
advisor. But the trial judge credited Hays's testimony
regarding the conversation she had with Ellrich, finding that
"Ellrich did more than neutrally recite 'options' Hays could
consider."
                                                                    8


least 30%," and explained that its investment strategy involved

actively trading stock-indexed investments in an attempt to time

the rise and fall of the stock market.   It stated that neither

MFA nor EHCP "have operated a partnership with the same

objectives and portfolio strategy as" Convergent, and that

Convergent "was a newly-formed entity with no history of

operating performance."   It also identified investment risks

"associated with [Convergent's] proposed activities," including

risks associated with short selling, the use of leverage, and

the concentration of capital in single investments, industries,

or sectors.   Under the heading "Eligible Investors," the

offering memorandum explained that "[i]nvestors generally

. . . , if natural persons, must (i) have a net worth of at

least $1 million or (ii) income of at least $250,000 or (iii)

entities with assets of at least $5 million."   Under the heading

"Suitability," the offering memorandum declared:

    "Prospective investors should carefully evaluate whether an
    investment in [Convergent] is suitable for their particular
    circumstances and investment needs. In doing so, they
    should consult with such legal, tax, and financial advisors
    as they consider appropriate, and should avail themselves
    of the opportunity to ask questions of the [g]eneral
    [p]artner."

It also declared that "each investor should have sufficient

funds, beyond those he or she intends to invest in [Convergent],

to meet personal needs and contingencies."
                                                                   9


     The materials Hays received from EHCP also included an

investor questionnaire, which Hays filled out following a

telephone conversation with Ellrich during which she asked

Ellrich how to answer certain questions.   By signing the

investor questionnaire, Hays accepted certain terms and

conditions, including that she "ha[d] carefully reviewed

the . . . [o]ffering [m]emorandum," and was "able to bear the

economic risks associated with this investment."10   Hays

submitted the investor questionnaire to EHCP in December, 2000,

and soon after, EHCP determined that she was an "eligible

investor."11

     In January, 2001, Hays transferred all of her funds from

her Rydex and Profunds accounts from MFA to Convergent,

investing $381,354.80 in Convergent in total.   Following Hays's

investment, Ellrich continued to send her written reports on her




     10
       These risks "include[d] the likelihood that [the]
investment [would] not generate current income or distributions
even if [Convergent were] successful, and the possibility that
some or all of the amount invested [would] be lost if
[Convergent were] not successful."
     11
       In the investor questionnaire, Hays stated that her
"[a]pproximate current portfolio value" was $500,000. Hays did
not complete the section of the investor questionnaire asking
whether she had relied on a "purchaser representative."
                                                                  10


net worth and portfolio holdings (now including her Convergent

holding) as he had done previously.12

     From January, 2001, to June, 2001, Hays's investment in

Convergent declined in value by approximately seventeen per

cent.     Hays was aware of this decline at the time.   In the

period from 2001 to 2002, Ellrich spoke with Hays one-half dozen

times by telephone, reassuring her that the market was by nature

volatile but would correct itself eventually.     In these

conversations, Ellrich did not distinguish between Hays's

Convergent investments and her Fidelity investments (which MFA

continued to manage for Hays), and did not tell her that he

could not advise her regarding her investment in Convergent.

Both the stock market and the value of Hays' investment in

Convergent continued to decline throughout 2002.     Although Hays

was concerned, she "didn't do anything" because she trusted

Ellrich.

     In April, 2003, after an overstatement by U.S. Bank of the

balance in Convergent's accounts, Ellrich discovered that

Convergent's net asset value was "approximately $0," with the

result that Convergent became insolvent.    In September, 2003,

     12
       Following her investment with Convergent, Hays also
periodically received a separate "Statement of Benefits" from
Ellrich. In 2002, Hays stopped receiving any written statements
from Ellrich, who began reporting Hays's balances to her by
telephone, with Ellrich claiming that personal difficulties
prevented him from preparing written statements.
                                                                      11


Ellrich telephoned Hays and told her that a banking error had

caused a total loss of Convergent's value.     Ellrich also told

Hays that an investigator from the securities division of the

Secretary of the Commonwealth would be contacting her.        Ellrich

told her that he was working to recover the lost money, and that

it was only a matter of time before he could do so.        Although

Hays believed him, she began "to prepare for [her] future based

on no funds" by seeking employment in the real estate field,

where she began working in 2005.13 Hays filed this action

against Ellrich and MFA in the Superior Court on September 11,

2006.

     Discussion.    1.   "Seller" liability.   Under the

Massachusetts Uniform Securities Act, G. L. c. 110A,

§ 410 (a) (2), a sale of securities in Massachusetts may be

rescinded if the person who "offers or sells a security"

misleads the buyer by making an untrue statement of a material

fact or by failing to state a material fact, unless the seller

proves that he or she did not know of the untruth or omission

and in the exercise of reasonable care could not have known.14


     13
       In late 2003 and early 2004, when Hays asked Ellrich
about her situation, Ellrich offered to trade for her on the
futures market, but Hays declined. He also told her that her
interests were being represented in a class action that Ellrich
was bringing in Federal court against U.S. Bank, but Hays did
not recover anything from that lawsuit.
     14
          The full text of G. L. c. 110A, § 410 (a) (2) states:
                                                                 12


See Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 52

(2004).   Ellrich15 argues that he cannot be liable under the act

because he neither offered nor sold Convergent securities to

Hays.

     Not all who solicit the purchase of securities are

"sellers" under the act, nor are they all "sellers" under

§ 12(a)(2) of the Securities Act of 1933 (Federal act), 48 Stat.

74, codified at 15 U.S.C. § 77l (2012) -- which is the Federal

counterpart to § 410 (a) (2) of the act.16   Neither Congress nor




     "Any person who . . . offers or sells a security by means
     of any untrue statement of a material fact or any omission
     to state a material fact necessary in order to make the
     statements made, in the light of the circumstances under
     which they are made, not misleading, the buyer not knowing
     of the untruth or omission, and who does not sustain the
     burden of proof that he did not know, and in the exercise
     of reasonable care could not have known, of the untruth or
     omission, is liable to the person buying the security from
     him, who may sue either at law or in equity to recover the
     consideration paid for the security, together with interest
     at six per cent per year from the date of payment, costs,
     and reasonable attorneys' fees, less the amount of any
     income received on the security, upon the tender of the
     security, or for damages if he no longer owns the security.
     Damages are the amount that would be recoverable upon a
     tender less the value of the security when the buyer
     disposed of it and interest at six per cent per year from
     the date of disposition."
     15
       For convenience, because Ellrich is the sole owner and
operator of MFA, we refer to both appellants as "Ellrich" here
and throughout the discussion section except where the context
indicates otherwise.
     16
       As we discuss further in part 2, infra, we consider
Federal law here because the Legislature has directed us to
                                                                  13


the Legislature intended to impose rescission "on a person who

urges the purchase but whose motivation is solely to benefit the

buyer" of the security.     Pinter v. Dahl, 486 U.S. 622, 647

(1988).   See Stolzoff v. Waste Sys. Int'l, Inc., 58 Mass. App.

Ct. 747, 766 n.21 (2003).    Under both of these statutes, a

person "offers or sells a security" if he "successfully solicits

the purchase motivated at least in part by a desire to serve his

own financial interests or those of the securities owner."      Id.,

quoting Adams v. Hyannis Harborview, Inc., 838 F. Supp. 676, 686

(D. Mass. 1993), aff'd in part sub nom. Adams v. Zimmerman, 73

F.3d 1164 (1st Cir. 1996).    See Pinter, supra at 647.

    Ellrich does not deny that he solicited Hays's purchase of

Convergent securities, but he nonetheless argues that he cannot

be deemed a seller under the act because he had no "financial

interest" in Hays's purchase.    In support of this argument,

Ellrich notes that he did not receive a commission for Hays's

purchase of Convergent securities; nor did he receive any other

compensation directly tied to the sale of securities to Hays.

He also notes that the rate he earned as Convergent's investment

advisor -- 1.25 per cent per year of Convergent's net asset




"coordinate the interpretation and administration of [G. L.
c. 110A] with the related federal regulation." G. L. c. 110A,
§ 415.
                                                                 14


value -- was less than the 1.75 per cent he earned on Hays's

retirement funds before she invested them in Convergent.17

     Ellrich's argument fails because the judge found that

Ellrich solicited Hays to purchase Convergent securities

"motivated at least in part by a desire to serve [his] own

financial interests," and we conclude that her finding is not

clearly erroneous.   Although "personal financial gain is

clearest in cases where the defendant receives a commission or

other direct remuneration from the sale," we agree with the

"many courts [that] have taken a more expansive view of

financial gain that includes increased compensation tied to

share price or company performance."   In re OSG Sec. Litig., 971

F. Supp. 2d 387, 404 & n.119 (S.D.N.Y. 2013).   Here, Ellrich

earned an investment advisory fee from Convergent that was

calculated based on the net asset value of Convergent funds.

Although his fee percentage from Hays's retirement funds was

lower at Convergent than it had been at MFA, the judge found

that Ellrich viewed Convergent as an "opportunity" for him in

part because he expected that, if Convergent proved viable,

Furber would solicit additional investments that would

ultimately increase Convergent's net asset value and,

     17
       Although Ellrich's investment management fee was three
per cent per year of Convergent's net asset value, he was
responsible for paying "sub-advisory fees" totaling
approximately 1.75 per cent per year of Convergent's net asset
value, leaving him only 1.25 per cent.
                                                                   15


consequently, Ellrich's advisory fees.   In short, Ellrich was

motivated at least in part by the potential for a long-term

increase in his investment advisory fees if he could raise the

funds necessary to launch Convergent as a hedge fund.18   Cf. In

re Vivendi Universal, S.A. Sec. Litig., 381 F. Supp. 2d 158, 187

(S.D.N.Y. 2003) (defendant was seller of company's securities

where his bonuses were tied to company's increased earnings); In

re OSG Sec. Litig., supra at 404-405 (pleadings adequately

alleged that defendants were sellers of company's securities

where plaintiffs alleged that "the survival of the [c]ompany was

at stake," and that defendants' solicitation was motivated by

desire to keep their positions and salaries).19   The judge,


     18
       Convergent's offering memorandum declared that the
partnership was "seeking to raise Invested Capital in the
minimum amount of $15,000,000," which it characterized as the
"Minimum Offering."
     19
       Ellrich's reliance on Cohen v. State St. Bank & Trust
Co., 72 Mass. App. Ct. 627 (2008), is misplaced. In that case,
the plaintiff contended that his investment manager had made
false statements and omitted material facts when the manager
transferred the plaintiff's funds from one State Street
investment account to two State Street subaccounts. See id. at
629, 635. The Appeals Court affirmed the motion judge's ruling
that State Street was not a "seller" under the act and the
consequent grant of summary judgment for the defendants, because
there was no evidence that the transfer of funds in any way
affected the amount of investment management fees that State
Street earned from the account. See id. at 635 & n.12. Here,
by contrast, Ellrich's management fee was based on the net asset
value of all of Convergent's accounts, not just the value of
Hays's accounts, so he was motivated to urge her to transfer her
funds to Convergent as part of his effort to reach the minimum
offering amount and preserve the possibility that Convergent
                                                                    16


therefore, did not err in finding that Ellrich's solicitation of

Hays to purchase Convergent securities made him a seller under

the act.

    2.     Statute of limitations.   Ellrich contends that Hays's

claim under § 410 (a) (2) of the act, filed in September, 2006,

was not timely in light of the four-year limitations period in

§ 410 (e), which provides, "No person may sue under this section

more than four years after the discovery by the person bringing

the action of a violation of this chapter."     Ellrich contends

that the limitations period began to run in December, 2000, when

Hays received Convergent's offering memorandum and signed the

agreement to become a limited partner (which included the

representation that she had "received and read" the relevant

agreements).   Relying on dictum in Marram, 442 Mass. at 54 n.20,

quoting Kennedy v. Josephthal & Co., 814 F.2d 798, 802-803 (1st

Cir. 1987), Ellrich contends that the limitations period in

§ 410 (e) begins to run when the plaintiff is put on "inquiry

notice" of the violation, and he contends that the information

in the offering memorandum put Hays on "inquiry notice" in

December of 2000 that the investment was unsuitable for her,

because "inquiry notice" occurs when "a reasonable investor

would have noticed something was 'amiss,' e.g., when [she]


would attract assets from sources other than his former
investment clients and thereby substantially increase his
investment management fees.
                                                                  17


obtained a prospectus."   In Marram, however, the defendant who

solicited the plaintiff to invest in his hedge fund did not owe

the plaintiff a fiduciary duty; Ellrich, as Hays's investment

advisor, did owe her such a duty.   And in determining when the

statute of limitations clock begins to run, that makes all the

difference.

    Under the "fraudulent concealment" doctrine, codified at

G. L. c. 260, § 12, "[i]f a person liable to a personal action

fraudulently conceals the cause of such action from the

knowledge of the person entitled to bring it, the period prior

to the discovery of his cause of action by the person so

entitled shall be excluded in determining the time limited for

the commencement of the action."    We have interpreted this

statute to mean that "[w]here a fiduciary relationship exists,

the failure adequately to disclose the facts that would give

rise to knowledge of a cause of action constitutes fraudulent

conduct and is equivalent to fraudulent concealment for purposes

of applying § 12."   Demoulas v. Demoulas Super Mkts., Inc., 424

Mass. 501, 519 (1997), S.C., 428 Mass. 543 (1998), and S.C., 432

Mass. 43 (2000).   See Doe v. Harbor Sch., Inc., 446 Mass. 245,

254-255 (2006); Patsos v. First Albany Corp., 433 Mass. 323,

328-329 (2001); Puritan Med. Ctr., Inc. v. Cashman, 413 Mass.

167, 175 (1992), and cases cited.   In these cases, the statute

of limitations clock begins to run only when the plaintiff has
                                                                    18


"'actual knowledge' . . . of the facts giving rise to his causes

of action," i.e., the facts which the fiduciary had failed to

disclose.   Patsos, supra at 329 n.11.    See Crocker v. Townsend

Oil Co., 464 Mass. 1, 9 (2012) ("the statute of limitations

begins to run when the plaintiff has actual knowledge of the

wrong giving rise to his cause of action"); Doe, supra at 254-

255, quoting Akin v. Warner, 318 Mass. 669, 675 (1945)

(limitations clock for tort claim alleging breach of fiduciary

duty begins to run only when plaintiff has "'actual knowledge'

that she has been injured by the fiduciary's conduct," which

occurs "[o]nly when the beneficiary's harm at the fiduciary's

hands has 'come home' to the beneficiary"); Demoulas, supra.

Therefore, under the fraudulent concealment doctrine, "inquiry

notice" of a violation by a seller of securities is not enough

to start the limitations clock running when the seller owes a

fiduciary duty to the purchaser.

    This does not mean that the limitations clock begins only

when the plaintiff understands that she has a legal claim, that

is, when she realizes that the defendant has violated a law that

entitles her to sue to recover damages.    Doe, supra at 256-257.

Rather, the clock begins when the plaintiff has "actual

knowledge" of the wrong committed by the fiduciary, rather than

"knowledge of the consequences of that [wrong] (i.e., a legal

claim against the fiduciary)."     Id.
                                                                    19


    Ellrich contends that the actual knowledge standard should

not govern when the limitations clock starts to run for claims

under the act, and that we should instead apply the Federal

standard governing when the limitations clock starts to run for

claims under § 12(a)(2) of the Federal act.   As Ellrich

correctly notes, G. L. c. 110A, § 415, provides, "This chapter

shall be so construed as to effectuate its general purpose to

make uniform the law of those states which enact it and to

coordinate the interpretation and administration of this chapter

with the related federal regulation."    See Marram, 442 Mass. at

50 ("The Legislature has directed that we interpret the act in

coordination with the [Federal act]").    We therefore examine the

Federal standard and consider whether to apply it to the

limitations period under the act.

    Where the defendant is not the fiduciary of the plaintiff,

the long-standing Federal rule of fraudulent concealment mirrors

the Massachusetts rule.   "Fraudulent concealment tolls the

statute of limitations . . . even without affirmative acts on

the part of the defendant unless the plaintiff, through

reasonable diligence, discovered or should have discovered the

fraud."   Kennedy, 814 F.2d at 802.   Compare with Passatempo v.

McMenimen, 461 Mass. 279, 293-294 (2012), quoting Koe v. Mercer,

450 Mass. 97, 101 (2007) ("Under [the] discovery rule, the

statute of limitations starts when the plaintiff [1] discovers,
                                                                    20


or [2] reasonably should have discovered, that [he or she] has

been harmed or may have been harmed by the defendant's

conduct").    In determining when the limitations clock under the

Federal act begins, two questions are asked relating to when the

plaintiff "should have discovered the fraud."    The first is an

"objective" question asking whether there were "sufficient storm

warnings to alert a reasonable person to the possibility that

there were either misleading statements or significant omissions

involved in the sale."    Kennedy, supra, quoting Cook v. Avien,

Inc., 573 F.2d 685, 697 (1st Cir. 1978).    See Maggio v. Gerard

Freezer & Ice Co., 824 F.2d 123, 128 (1st Cir. 1987).     "'[S]torm

warnings' . . . trigger a plaintiff's duty to investigate in a

reasonably diligent manner," so the second, "more subjective"

question asks whether "a plaintiff actually exercised reasonable

diligence."    Id., quoting Cook, supra.   The existence of a

fiduciary relationship is relevant only with respect to this

second inquiry, and only as one of "the circumstances of the

particular case, including the existence of a fiduciary

relationship, the nature of the fraud alleged, the opportunity

to discover the fraud, and the subsequent actions of the

defendants."   Maggio, supra.

    Federal courts have applied this two-part test to

circumstances like those here, where unsophisticated investors

received a prospectus that disclosed the risks of the
                                                                  21


investment, and where the investors failed to make any inquiry

into the risks of the investment because they relied on oral

statements by the defendants that were contradicted or corrected

by the prospectus.   Federal courts have repeatedly held that

receipt of the prospectus constitutes a "storm warning" even

where the plaintiff was unsophisticated.   See Dodds v. Cigna

Sec., Inc., 12 F.3d 346, 350 (2d Cir. 1993), cert. denied, 511

U.S. 1019 (1994); Kennedy, 814 F.2d at 802-803 ("We are faced

here with the great glowering clouds of the offering

memorandum," where, "[f]or each oral representation that [the

defendant] made and upon which appellants claim they relied,

there was a direct refutation by the plain language of the

offering memorandum").   Although "subjective" factors are

relevant in applying the second part of the test, Federal courts

have rejected the argument that unsophisticated plaintiffs'

reliance on defendants excused the plaintiffs from reasonable

diligence after storm warnings were present, even where the

defendants had committed a breach of fiduciary obligations

towards them.   See Maggio, 824 F.2d. at 129 ("Even assuming that

defendants owed plaintiff a fiduciary duty, . . . plaintiff's

prolonged failure to investigate the possibility of fraudulent

conduct in light of the abundant facts known to him . . . can

hardly be characterized as due diligence"); Kravetz v. United

States Trust Co., 941 F. Supp. 1295, 1303-1309 (D. Mass. 1996).
                                                                   22


See also J. Geils Band Employee Benefit Plan v. Smith Barney

Shearson, Inc., 76 F.3d 1245, 1259-1260 (1st Cir.), cert.

denied, 519 U.S. 823 (1996), quoting Cook, 573 F.2d at 696 n.24

("Even assuming that [defendants] owed [plaintiffs] a fiduciary

duty, an investor 'must apply his common sense . . . in

determining whether further investigation is needed' . . . [and]

[w]hile we recognize, and are genuinely troubled by, the

possibility that the [plaintiffs] were such unsophisticated

investors that they were not in a position to heed the storm

warnings, . . . plaintiffs cannot shroud themselves in ignorance

or expect that their unsophistication will thoroughly excuse

their lack of diligence or failure, here, to even inquire").      In

short, under Federal law, where clients have invested in

securities based on the false statements or omissions of an

investment advisor who owes them a fiduciary duty, the clients

are still required to act with reasonable diligence if the

information in the prospectus suggests that their reliance on

the investment advisor may be misplaced, and the limitations

clock begins upon their failure to do so, even if they have no

actual knowledge that they had been misinformed.

    We decline to adopt this Federal standard as our own under

the act for two reasons.   First, the actual knowledge standard

recognizes the trust that an investor is entitled to place in a

fiduciary's advice regarding investment decisions.   See Doe, 446
                                                                  23


Mass. at 255 ("[T]he actual knowledge standard recognizes the

dependent status of the beneficiary vis-à-vis the fiduciary, and

protects the beneficiary's legitimate expectation that the

fiduciary will act with the utmost probity in all matters

concerning the relationship").   It also recognizes that

unsophisticated investors who are advised by their fiduciary

that an investment is suitable for them are unlikely to read a

prospectus with an eye towards testing the wisdom of that

advice, especially where they might not understand the

information that is relevant to such investment decisions and

might not perceive the significance of "storm warnings."    The

argument that financial information in a prospectus addressed to

sophisticated investors will alert the investor to the

possibility that his or her fiduciary is untrustworthy, and

should impose on the investor a duty to make an independent

inquiry into the fiduciary's trustworthiness, is contrary to the

relationship of trust implicit in any fiduciary relationship.

See id. at 256 n.13 ("a beneficiary is entitled to approach [a

fiduciary's representations] without skepticism . . . and is not

required to ascertain the absence of foul play").

    Second, although G. L. c. 110A, § 415, directs that courts

"coordinate the interpretation and administration of this

chapter with the related [F]ederal regulation," it does not

mandate that courts adopt the interpretation of comparable
                                                                 24


Federal securities statutes, especially where doing so would

conflict with our interpretation of other Massachusetts

statutes, such as G. L. c. 260, § 12, which codifies our

fraudulent concealment doctrine.   Moreover, the Legislature

cannot have intended that the limitations period under the act

would be the same as the limitations period under the Federal

act where the Legislature provided Massachusetts plaintiffs a

much more generous limitations period under the act (four years)

than Congress provided under the Federal act (one year), and

where the Legislature failed to impose the three-year statute of

repose included in the Federal act.   Compare G. L. c. 110A,

§ 410 (e), with 15 U.S.C. § 77m (2012).20

     Applying the actual knowledge standard to the facts of this

case, we conclude that where an investment advisor owes a

fiduciary duty of disclosure to his or her client and violates

the act by misleading the client regarding the suitability of an

investment, Massachusetts law deems it fraudulent concealment

for the fiduciary to fail to reveal to the client that the

investment was not suitable, and the limitations clock begins to

run only when the client has actual knowledge of the

     20
       Title 15 U.S.C. § 77m (2012) provides, in relevant part,
"No action shall be maintained to enforce any liability [under
§ 12(a)(2)] unless brought within one year after the discovery
of the untrue statement or the omission, or after such discovery
should have been made by the exercise of reasonable diligence,"
and, "In no event shall any such action be brought . . . more
than three years after the sale."
                                                                    25


unsuitability of the investment.    Here, the facts giving rise to

Hays's cause of action under § 410 (a) (2) of the act are that

Convergent was an unsuitable investment for Hays, and that

Ellrich, as her fiduciary, failed to disclose to her its

unsuitability in soliciting her to purchase Convergent

securities.    Therefore, in the context of this case, the

limitations clock for Hays began when she had actual knowledge

of the unsuitability of Convergent securities -- for instance,

knowledge that investing in Convergent was substantially riskier

than the investments that Ellrich had previously made for her.

The judge found that, even though the value of Convergent

securities declined after Hays purchased them, "a reasonable

client in Hays'[s] position could not have ascertained, without

expert advisor advice, how the Convergent risk compared to the

risks she had been taking historically, particularly in a

volatile market."    Further, the judge found that "a reasonable

investor in Hays'[s] position . . . could not reasonably have

noticed that something (other than market forces) was amiss

prior to, at the earliest, September, 2003," when Ellrich

informed Hays that Convergent was insolvent and that an

investigator from the securities division of the Secretary of

the Commonwealth would be contacting her.21   We conclude that

these findings are not clearly erroneous.

     21
          The trial judge relied on Marram, 442 Mass. at 54 n.20,
                                                                   26


     Ellrich argues that Hays's action is time barred because

Hays received Convergent's offering memorandum in December, 2000

(approximately six years before her action was filed), and the

information in that offering memorandum contradicted the

misrepresentations and corrected the omissions that the judge

found that Ellrich had made.22   It is true that a sophisticated

investor who carefully read and considered the offering

memorandum would have recognized that the investment was not

suitable for a person in Hays's financial position.    But a

sophisticated investor in Hays's financial position who

carefully read and considered the offering memorandum would also

likely not have invested in Convergent.   The fact that Hays did

invest in Convergent supports the judge's finding that, despite

having received the offering memorandum, she was not

sophisticated enough to have actual knowledge of the

unsuitability of the investment at the time she invested.

     Ellrich alternatively contends that Hays had actual

knowledge by June, 2001, when she knew that her investment in



in applying an "inquiry notice" standard to the issue whether
Hays's statutory claim was timely, finding that Hays was not on
inquiry notice of the statutory violation by Ellrich at any time
prior to 2003. Although the trial judge did not apply an actual
knowledge standard, as we do here, the judge implicitly found
that Hays did not have actual knowledge before 2003 by finding
that Hays was not on inquiry notice before 2003.
     22
       Hays does not contend that the offering memorandum
contained material misrepresentations or omissions.
                                                                  27


Convergent had declined by approximately seventeen per cent in

the first five months.   But actual knowledge of an investment

loss is not sufficient by itself to constitute actual knowledge

that the fiduciary falsely represented the investment's

suitability, especially when the loss comes at a time when the

over-all stock market is declining.   The knowledge required to

commence the limitations clock is knowledge that she purchased

Convergent securities based on a misrepresentation by Ellrich of

their suitability for her, and, in essence, the judge found that

this did not occur before September, 2003, when she learned that

she had lost her entire investment in Convergent.

    Ellrich also contends that his fiduciary relationship with

Hays regarding her equity investments ended when she liquidated

her Rydex and Profunds accounts and transferred those funds to

Convergent.   Once that occurred, he contends, his fiduciary duty

extended only to her fixed income investments that she held with

Fidelity.   He supports this contention by arguing that, having

become the investment advisor for Convergent, he could no longer

serve as Hays's investment advisor regarding her equity

investments, because his fiduciary duty to the general partner

of Convergent would potentially be in conflict with a fiduciary

duty to any limited partner investor in Convergent.   There is no

dispute that Ellrich served as her fiduciary for all her

retirement funds when he advised her to invest in Convergent,
                                                                  28


and when she signed the offering memorandum.   We need not

address whether the actual knowledge standard applies to a claim

against a person who once was a fiduciary but who subsequently

terminated the fiduciary relationship, because the judge found

(and the evidence supports her finding) that Ellrich did not

explain to Hays his potential conflict of interest -- that is,

he did not explain that "he would no longer be considering

Hays'[s] individual needs with respect to those trades, and that

he would no longer have any obligation to ensure that any of the

securities purchased for the Convergent portfolio was an

appropriate investment for Hays; and that [he] was no longer

obliged to monitor for Hays the assets held by those funds."

The judge further found, based on Ellrich's omissions and his

conduct, that he "continued to provide advisory services to

Hays, and accordingly Hays reasonably continued to trust [him]

to do so."   In short, Ellrich's fiduciary relationship with Hays

regarding the funds she invested in Convergent should have ended

once she made that investment, but Ellrich never told her that

it did, and she reasonably understood that he continued to serve

as her investment advisor for these funds and continued to make

market-timing investments on her behalf.

    Because we embrace the actual knowledge standard where an

investment advisor owes his or her client a fiduciary duty in

determining when the limitations clock commences for claims
                                                                    29


under the act, and because we conclude that the judge was not

clearly erroneous in finding that Hays did not have actual

knowledge of a violation of the act before 2003, we affirm the

judge's finding that Hays timely filed her action under the act.

    3.   Remaining claims on appeal.    We need not dwell long on

Ellrich's remaining claims.   We reject his contention that the

judgment against him should be vacated because it is contrary to

the great weight of the evidence.    The evidence is more than

sufficient to support the judge's finding that Ellrich's

misrepresentations and omissions were material in that they

strongly suggested that Convergent was a suitable investment for

Hays to invest three-quarters of her retirement savings, where

it was not.    Even if we were to accept Ellrich's argument that

the offering memorandum contradicted or corrected all his false

oral assertions and omissions, that would not negate the

materiality of his oral statements.    "The test whether a

statement or omission is material is objective:    'there must be

a substantial likelihood that the disclosure of the omitted fact

would have been viewed by the reasonable investor as having

significantly altered the "total mix" of information made

available.'"   Marram, 442 Mass. at 57-58, quoting Craftmatic

Sec. Litig. v. Kraftsow, 890 F.2d 628, 641 (3d Cir. 1989).       The

judge did not err in finding that, given the long-standing

relationship of trust between Ellrich and Hays, Hays reasonably
                                                                 30


viewed Ellrich's advice regarding the suitability of the

Convergent investment as significantly altering the "total mix"

of information available to her.   Cf. Marram, supra at 48, 55-59

(claim under act alleging false oral statements regarding

suitability of investment survived motion to dismiss even though

subscription agreement included integration clause that stated

that it superseded all prior understandings, written or oral).

     The evidence is also sufficient to support the judge's

finding that Convergent was an unsuitable investment for Hays

based on the expert testimony regarding the unsuitably high risk

posed by investing in a hedge fund such as Convergent, and the

offering memorandum's statements that eligible investors --

unlike Hays -- should have had a net worth of at least $1

million, an income of at least $250,000, or entities with assets

of at least $5 million, and should have had sufficient funds

apart from those invested in Convergent to meet personal needs

and contingencies.23




     23
       We need not consider Ellrich's claim that the judge
abused her discretion in denying Ellrich's motion to set aside
the default earlier entered against him, where the judge made
findings of fact and law as if he were not a defaulted party,
and these findings provide an adequate and independent ground
for the judgment against him. Nor need we consider whether the
judge's allowance of the common-law claims would independently
support the award of rescissionary damages where those damages
were awarded under the act, and the judge did not award any
damages beyond those available under the act.
                                                               31


    Conclusion.   For the foregoing reasons, the judgment in

favor of Hays against Ellrich and MFA is affirmed.

                                   So ordered.
