A Pittsburgh nonprofit sued a Massapequa man and his money management company, saying they mishandled a $2 million investment.

The charity said in its lawsuit that William F. Harley III continued operating Fursa Strategic Alternatives from the basement of a Hooters restaurant on Long Island after saying in 2008 the fund would close and the charity's money would be returned.

Federal filings show Fursa in January was the largest investor in lingerie company Frederick's of Hollywood Group. A spokesman for Harley said lawyers for the fund sought unsuccessfully to contact the charity last year. Harley could not be reached for comment at his home Wednesday.

The Claude Worthington Benedum Foundation filed the lawsuit last month in the Court of Common Pleas in Allegheny County, Pa. It has since been moved to federal court in the western district of Pennsylvania.

In 2004, according to the lawsuit, the foundation invested $2 million with a fund managed by Harley at Mellon Financial, a Pittsburgh-based asset manager. In 2007, Mellon merged with Bank of New York to become Bank of New York Mellon Corp. That year, Harley bought the fund and its assets and continued managing money at Fursa, the lawsuit said.

Fursa reported that the Foundation's investment had grown to $2.5 million in December 2007, but by March 2008, its value had fallen to around $306,000, the lawsuit said.

After telling the foundation it would return its remaining money, Fursa went incommunicado, the lawsuit says, closing its offices and cutting off its phone lines around 2009.

The foundation is seeking more than $2 million, including the initial investment, punitive damages and legal expenses, Jason Archinaco, a Pittsburgh lawyer representing it, said Wednesday.

A spokesman for Harley, Ed McCabe, said Wednesday that the fund investing the foundation's money became Arsenal Group, an investment fund in Amityville that Harley manages. Lawyers for Arsenal sought unsuccessfully to contact the foundation at the time of the transition, McCabe said.

The lawsuit points to Fursa's investment in Frederick's of Hollywood as evidence the company continued operating instead of returning its money. Fursa Alternative Strategies owns 46 percent of Frederick's, according to the company's proxy statement. Shares of Frederick's have fallen from $4.52 five years ago to 34 cents Wednesday. According to the company's website, Frederick's has two retail stores on Long Island.

Harley owns a Hooters franchise that operates four restaurants in Long Island and Queens, McCabe said. He said Harley occasionally has business meetings at them, but doesn't run an office there.

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