MIT Professor and Son Agree to Pay $4.8 mill to Settle a Case of Fraud
Professor Gabriel Bitran, who teaches at MIT’s Sloan School of Management, and his son Marco Bitran, who is a 1997 MIT graduate, have been charged by the SEC for hedge fund fraud. They have agreed to pay $4.8 million to settle the case against Bitran’s firm, GMB Capital Management. 
The Securities and Exchange Commission said that both Gabriel Bitran and his son gave misinformation regarding GMB Capital’s strategy, investments and historic performance to investors as well as the media. The SEC said that although Bitran claimed to trade liquid securities, the majority of his strategy dealt with investing in illiquid investments, some of which were funds managed by Bernie Madoff.
Once GMB split between GMB Management and GMB Partners, the SEC found that GMB Management provided false documents. The fund was also affected by a fraud and did not inform their investors of losses.
Finally, after countless counts of fraudulent activity, GMB Partners shut down. The Bitran’s were barred from the securities industry.
This situation would likely have posed dozens of yellow flags for investors who performed operational due diligence on GMB. For one, by taking a closer look into the funds’ counterparty oversight, an operational due diligence consultant would have reached out to service providers to confirm their relationship with the fund as well as gather further information on the scope of the work that was being done.
Cash Control and Management would have also allowed for more transparency between this fund and their investors. Even the reputation of employees might have been a helpful piece to look at while reviewing GMB.
Many cases similar to this are only being settled now, even though they were taking place during the days of the Madoff scandal. Perhaps the hundreds of surfacing stories will motivate investors to pay the small cost of operational due diligence, instead of the larger cost for major capital losses.
Corgentum’s Operational Due Diligence Webinar Series Featured in the Hedge Fund Law Report
Corgentum Consulting’s operational due diligence webinar series continues to fuel the discussion surrounding investor operational due diligence challenges and trends.
Corgentum’s Consulting’s operational due diligence webinar series was recently featured in the Hedge Fund Law Report .
The first webinar in the series, Operational Due Diligence Survival Kit for 2012: Essential skills for uncovering and evaluating operational risk in hedge funds, private equity and traditional funds, outlined key trends for investors to consider when performing operational due diligence. The Hedge Fund Law Report article, “Corgentum Webinar Highlights Trends, Challenges and Best Practices for Hedge Fund Investors in Conducting Operational Due Diligence” can be read on the Hedge Fund Law Report
website (subscription required) in Vol. 5, No. 16 (Apr. 19, 2012).
Corgentum has also recently posted a replay of the webinar on the Videos section of Corgentum.com. .
Readers can sign up for news related to upcoming Corgentum webinars focused on operational due diligence via the firm’s Contact page.
Jason Scharfman Speaks with PE Manager about Corgentum Consulting’s Latest Private Equity Study
Managing Partner, Jason Scharfman of Corgentum Consulting recently spoke with PE Manager about Corgentum’s most recent private equity study entitled, Private Equity Operational Due Diligence Trends – Navigating the Path Forward.
The private equity study showed that 78% of those who perform operational due diligence on hedge funds do not perform due diligence on private equity. 68% of those 78% plan to do operational due diligence on private equity funds in the future- and most plan to do so in the next year.
Mr. Scharfman was quoted in the article, PE Manager: LPs back office inspection set to rise, written by Nicholas Donato. He said, “Institutional investors exhibit a post-Madoff type mentality where tougher questions are being asked around fund operations; the kicker being better relations for those GPs able to pass their expectations.”
It is evident that even the most basic level of an operational due diligence review is becoming more common and essential within the private equity space.
To read the full PE Manager article, click here. (Subscription required)
Also, to read Corgentum’s private equity study, visit their website at www.Corgentum.com or click here.
