The U.S. Attorney’s Office says that Justin Paperny, a former account vice president at UBS Financial Services, Inc., has pleaded guilty to helping Capital Management Group founder Keith Gilabert bilk at least $2.5 million from investors.
Paperny pled guilty to wire fraud, securities fraud, and conspiracy to commit mail fraud, while admitting that he helped Gilabert fraudulently run GLT Venture Fund. Paperny also said that he lied to investors so that they would invest in the fund, took kickbacks from Gilabert, and conspired with him to mislead investors about the hedge fund’s performance history, the oversight of Capital Management Group by his brokerage firm, and any risks connected to investing in Capital Management Group.
That said, Paperny also says that he informed management at the brokerage firm that GLT had not been adhering to its investment strategy and that authorities at his firm knew of Gilabert’s fraudulent behavior. The investigation is pending. Paperny faces a possible 5-year federal prison term. He has agreed to cooperate with investigators as a condition of his guilty plea.
In 2006, Gilabert pled guilty to conspiracy charges for his role in the scheme. He said that for 4 ½ years (from September 2000 to January 2005), Capital Management Group collected over $7 million from over 40 clients and offered investments in GLT. He said he lost and misappropriated most of these funds.
Last year, the SEC had also filed a lawsuit charging Gilabert and Capital Management Group with offering and selling limited partnerships in GLT, in addition to raising $14.1 million from nearly 40 investors. Investors were told that a portfolio of stocks and options would be established and that GLT could generate average annual returns that ranged from 19% to 36%. Investors were also told that Gilabert and GLT would only receive compensation that was based on performance if the company became profitable. The company lost $7.8 million, with $1.7 million misappropriated for the company and Gilabert’s personal use. $4.6 was misused in new investor funds to pay current investors.
Shepherd Smith and Edwards represents investors who have sustained financial losses because of the inappropriate actions of brokers or their firms. Our law firm offers a free consultation to prospective clients who contact us via e-mail. Contact Shepherd Smith and Edwards today.
Related Web Resource:
Second Broker Enters Guilty Plea in Bogus Fund, The Signal.com, February 27, 2007
SEC Charges Southern California Hedge Fund Manager and His Firm in a Multi-Million Dollar Securities Fraud Scheme, SEC.gov, May 1, 2007
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s state. The content of this Website contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this Website. Read More.