Former Associate Dean of MIT Sloan School and Harvard MBA Son Sentenced to Prison for Hedge Fund Scam
BOSTON – Two former Boston-area hedge fund managers were sentenced on Dec. 14, 2015, for conspiring to mislead investors into investing more than $500 million in their fraudulent hedge fund business.
Gabriel Bitran, 70, of Newton, a former professor and associate dean of the Massachusetts Institute of Technology (MIT) Sloan School of Business, and his son Marco Bitran, 40, of Brookline, a Harvard Business School graduate and money manager, were each sentenced by U.S. District Court Senior Judge Mark L. Wolf to 45 months in prison, three years of supervised release, forfeiture and restitution of more than $11 million.
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 delivered average annual returns between 16 and 23%, with no down years. The Bitrans falsely told investors that the money in their 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% of their principal in many instances. Nonetheless, 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.
At the same time they were lying to investigators and investors, Gabriel and Marco Bitran privately admitted to each other that they had made false statements to investors and owed them restitution. For example, in July 2009, Gabriel Bitran emailed 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 Sept. 1, 2009 email, 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 personal assets by transferring them out of their 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 siphoned out of the hedge funds.
In total, the Bitrans lost more than $140 million of their investors’ principal.
United States Attorney Carmen M. Ortiz; Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; and William P. Offord, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation in Boston, 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 was prosecuted by Assistant U.S. Attorneys Sara Miron Bloom, Brian Pérez-Daple and Mary Murrane of Ortiz’s Criminal Division.