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May 28, 2018 Law

Legal challenges, damages mount for would-be Hartford med-tech investor

Photo | HBJ File A “no-trespass” sign surrounds two Washington Street properties, which CliniFlow Technologies' David Wagner proposed to redevelop.
David Wagner, Chairman & CEO, CliniFlow
Matt Pilon

A New York arbitration court has ordered a would-be Hartford entrepreneur — who promised but failed to bring 195 medical-technology jobs to the Capital City in exchange for state aid — along with his associates and various companies to pay $14 million to former investor-employees who were allegedly defrauded out of six-figure investments as well as salaries and benefits.

In two separate legal cases culminating in Nov. 2017 and March of this year, arbitrators awarded nearly $2.9 million and $10.9 million, respectively, to about a dozen individuals who had been recruited to work for an array of companies controlled by David Wagner, including CliniFlow Technologies, Downing Investment Partners, Hanover Square Capital Partners, 3si Systems, Downing Health Technologies and others, according to court records.

Those are some of the same companies Wagner once told the Connecticut Department of Economic and Community Development that he would move to Hartford as part of a $45 million investment that included erecting a new office building near Hartford Hospital in exchange for $4 million in state aid. Ultimately, Wagner, who missed key project deadlines, only received $400,000 in state money, but his project hasn't come to fruition. Last November, DECD declared Wagner to be in default of his aid agreement and the agency has been trying to recoup that money.

Meantime, the employees who filed the arbitration actions against Wagner's companies and management team said that in order to be hired, they were required to invest six-figure sums — money that was largely never recouped and allegedly not used for its intended purposes, court documents said. Many also said they were paid little or no wages after starting their new roles, even though they were promised salaries.

“The evidence is overwhelming that [their] entire employment process was a scheme intended solely to entice new employee-investors, knowing their money would be redirected to unstated purposes that would not benefit the company into which the money was invested,” arbitrator Stephen Ruffino wrote in his March award decision.

In the November award decision, arbitrator Carol Mager wrote that Wagner was “without dispute the chief initiator of the schemes … ” but said that co-defendants Michael Shaut, Marc Lawrence and Richard Buckingham were “actively involved” as corporate officers.

Wagner, a Trinity College alum who previously sat on the Hartford private school's board of trustees, was found personally liable in each of the arbitration awards. However, in January he declared personal bankruptcy in Rhode Island, which stayed the arbitration proceedings against him, according to court records.

“We are aware that Mr. Wagner through various entities has been perpetrating this scheme for many years and with dozens of individuals victimized throughout multiple states,” said Ross Carmel, an attorney for the petitioners in each of the cases. “We're certainly happy about the result of the arbitration award, we believe the amounts therein were correct and indicative of the harm that Mr. Wagner has caused.”

Attorneys listed for Wagner, Shaut, Lawrence and the companies did not respond to requests for comment.

Records of arbitration proceedings are often shielded from the public, but documents can be viewed once attorneys seek affirmation of an award from the state supreme court. In this instance, both awards against CliniFlow and the other parties are available for public viewing on the New York Supreme Court's website.

A judge affirmed the $2.9 million award in February, though Shaut this month notified the court he intended to appeal, court records show. The $10.9 million award has not yet been affirmed, records show.

Meanwhile, both sets of arbitration plaintiffs, as well as plaintiffs from two ongoing federal lawsuits against Wagner, have intervened in his personal bankruptcy case, asking the judge to rule that Wagner's financial obligations to them can't be discharged under bankruptcy law.

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