The former deputy dean of MIT’s business school and his son agreed to plead guilty today(aug. 12) to operating a $500 million hedge fund scam.
Gabriel Bitran, 69, at one time a distinguished scholar in operations research at Sloan, falsely told clients that hedge fund he ran with his son, GMB Capital Partners, was delivering annual returns between 16% and 23%, according to federal prosecutors.
When the financial crisis hit in the fall of 2008, several of the Bitrans’ hedge funds had “disastrous losses,” causing investors to lose 50 percent to 75 percent of their principal. Some of the money was invested with New York financier Bernard Madoff, who was convicted in 2009 of defrauding investors of billions of dollars and was sentenced to 150 years in prison.
Meantime, the Bitrans withdrew about $12 million of their own money from the hedge funds, prosecutors allege, while forcing customers to wait to redeem money from their GMB Capital Management, later renamed ClearStream Investments.
Bitran, who taught at MIT for 35 years, served as deputy dean for five years. As chairman of the Sloan search committee to find a new dean for the school in 2007, he was instrumental in the recruitment of David Schmittlein from Wharton in 2007.
Bitran’s son Marco Bitran, 39, who got his MBA from Harvard Business School in 2003, will also plead guilty to the same charges, according to a statement from U.S. District Attorney Carmen Ortiz.
They also falsely claimed that the money would be invested using a complex trading model based on research Gabriel Bitran conducted at MIT. In fact, they placed investor money with Bernie Madoff and the Petters Group Worldwide, both of which were later found to be Ponzi schemes.
In an email that Gabriel Bitran sent his son in 2009, he admitted that they had misled investors “with a range of statements that were incorrect simply to increase our income.”
He added: “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.”
If the plea agreements are accepted by a judge, the two could face between two and five years in prison. They could also be forced to pay as much as $290 million in fines plus payments to victims.
No date has been set for the Bitrans to enter their pleas or for their sentencing.
In 2012, the two men settled charges brought by the Securities and Exchange Commission by agreeing to pay $4.8 million and to be barred from the securities industry.