Corruption: MIT associate dean and his son guilty in $500 million hedge fund scam.

U.S. Attorney’s Office 
District of Massachusetts

BOSTON—Two Boston-area hedge fund managers pleaded guilty today to conspiring to mislead investors into investing more than $500 million in their fraudulent hedge fund business.

Gabriel Bitran, 69, of Newton, a former professor and associate dean of the Massachusetts Institute of Technology (MIT) Sloan School of Business, and his son Marco Bitran, 39, of Brookline, a Harvard Business School graduate and money manager, pleaded guilty to conspiracy to commit securities fraud, wire fraud and obstruction of justice in connection with their hedge fund businesses, GMB Capital Management and GMB Capital Partners. U.S. Senior District Judge Mark L. Wolf deferred a determination as to whether he will accept the plea until the time of sentencing which is scheduled for March 27, 2015.

“This office continues to pursue complex white-collar crimes no matter who the perpetrator,” said United States Attorney Carmen M. Ortiz. “No one is above the law. Here, a highly respected MIT professor and his well-educated son used their connections to lure investors into a scam which ultimately lost more than $140 million.”

“Gabriel and Marco Bitran cheated their victims out of hundreds of millions of dollars of their retirement money and savings by lying to them over and over again and claiming false returns and profits. Today’s guilty plea is a significant step in our ongoing effort to bring justice to victims of investment fraud. The FBI and our law enforcement partners will keep exposing those responsible for these crimes as long as innocent people are cheated out of their hard earned money,” said Vincent B. Lisi, Special Agent in Charge of the Boston Division of the FBI.

“Investment returns that seem too good to be true – such as those offered by the Bitrans –should be a signal to investors to stay clear” said Special Agent in Charge William P. Offord of IRS Criminal Investigation. “Today’s guilty pleas demonstrate our collective efforts to ensure that the financial services industry will not be used for unlawful personal gain, but will be operated in a fair and honest manner to promote the public interest.”

As set forth in the Information to which the they pleaded guilty, from 2005 through 2011, Gabriel and Marco Bitran solicited and maintained investors in their hedge fund and investment advisory businesses through false claims that, for eight or more years, they had managed friends and family funds, delivering average annual returns between 16 and 23%, with no down years. The Bitrans falsely told investors that the money in GMB hedge funds would be invested according to a complex mathematical trading model developed by Gabriel Bitran and based upon his MIT research on optimal pricing theory. The Bitrans also routinely concealed from investors that certain of their hedge funds were simply “funds of funds,” that is, hedge funds in which values of investments are determined by the value of investments in other independently managed hedge funds, some of which were themselves broad-based funds of funds.

By means of their fraudulent representations, the Bitrans induced investors to entrust over $500 million to their businesses. From this money, the Bitrans paid themselves millions of dollars in management fees.

In the fall of 2008, several of the Bitrans’ hedge funds had disastrous losses, resulting in investors losing 50–75 percent of their principal in many instances. Nonetheless, in the fall of 2008, as their funds were experiencing these losses, Gabriel and Marco Bitran redeemed approximately $12 million of their own money from these hedge funds, while deferring other investors’ requests for redemption. The Bitrans thereby extracted much of the value of their own investments while leaving other investors to suffer more losses as the funds’ values declined precipitously.

In January 2009, while investigating potential victims of the Madoff fraud, examiners from the United States Securities and Exchange Commission (SEC) learned of the Bitrans’ performance claims and asked for supporting documentation. In response, the Bitrans made false statements to the SEC examiners and provided fabricated records purporting to support their claimed trading performance.

As they did so, Gabriel and Marco Bitran acknowledged to each other that they had made false statements to investors and owed them restitution. For example, in July 2009, Gabriel Bitran e-mailed Marco Bitran and discussed the fact that they had misled investors:

“We have mislead [sic] a lot of people with a range of statements that were incorrect simply to increase our income. . . . A person with the experience and knowledge of the financial sector and a veteran professor of MIT should not have engaged in this type of behavior. . . . I certainly do not blame you for everything that happened; we both share responsibility. . . . With [several named individuals] and probably a few others . . . we told them a story that was not true! . . . In my view you are discarding their anger as bad losers. This is not the whole story. They are not idiots, they know that they were mislead [sic]. The penalty for this type of action is Full [sic] restitution, which obviously we cannot afford.”

Similarly, in a September 1, 2009 e-mail, Marco Bitran acknowledged to his father that he had not acted honestly. He stated:

“We are certainly sharing equally in this dad. . . . Lots of our problems were caused by my good intentions but very poor actions when it came to true honesty.”

Still, from early 2009 through 2010, the Bitrans took steps to shield their assets by transferring them out of GMB businesses and into entities with less obvious affiliations to Gabriel and Marco Bitran. To effect some of these transfers, they used the identity of a family member without that person’s knowledge, obtaining falsely notarized signatures in that person’s name, to shield millions of dollars that they had preferentially transferred out of the GMB hedge funds.

In total, the Bitrans lost more than $140 million of GMB investors’ principal.

If the plea agreements are accepted by the Court, the Bitrans will be sentenced to no less than two years and no more than five years in jail, as well as three years of supervised release, and forfeiture in the amount of $10 million.

U.S. Attorney Ortiz, SAC Lisi, and SAC Offord made the announcement today. The United States Attorney’s Office received valuable assistance from the Securities and Exchange Commission in the course of investigating this case. The case is being prosecuted by Assistant United States Attorneys Sara Miron Bloom of Ortiz’s Economic Crimes Unit, Brian Pérez-Daple of the Major Crimes Unit and Mary Murrane, Chief of the Asset Forfeiture Unit.

If you believe that you are victim or have any information regarding this case you may contact us at USAMA.VictimAssistance@usdoj.gov.

The details contained in the information are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law or the Court accepts their guilty pleas.
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