Former Mutual Fund Founder And Manager Sentenced For Defrauding Investors

Damian Williams, the United States Attorney for the Southern District of New York, announced today that OFER ABARBANEL was sentenced by U.S. District Judge Lewis A. Kaplan to four years in prison for defrauding investors and prospective investors in a mutual fund he founded and controlled.  ABARBANEL previously pled guilty to one count of investment adviser fraud.

U.S. Attorney Damian Williams said: “Ofer Abarbanel violated the trust placed in him by investors.  He promised investors safe and liquid investments, but instead transferred their money to counterparties he controlled and engaged in risky investments he was not authorized to make.  Today’s sentence should send a strong signal to investment advisers that violations of their fiduciary duties to investors will have consequences.”

According to the allegations in the Indictment, Superseding Information, and statements made in public court proceedings:

Beginning in approximately 2018 through his arrest in June 2021, OFER ABARBANEL engaged in a scheme to defraud investors in a mutual fund he founded and controlled, called “Income Collecting 1-3 Months T-Bills Mutual Fund” (the “Fund”).  ABARBANEL also owned and controlled the investment adviser to the Fund.  In that capacity, ABARBANEL made materially false representations and omitted material information to the largest group of investors (the “Investor Group”) about how their money would be invested. 

Among other things, ABARBANEL falsely represented that investments in the Fund would be placed “primarily” in short-term United States Treasury securities, when instead of investing in such securities directly, ABARBANEL and his confederates transferred the investor funds to counterparties controlled by or otherwise closely associated with ABARBANEL for use, among other things, in trading not authorized by the Fund’s offering documents.

ABARBANEL further represented that, in order to enhance income, the Fund intended to invest in securities lending transactions as well as repurchase and reverse repurchase agreements.  ABARBANEL represented, as to these transactions, that the Fund would receive and maintain in its possession and control safe and secure collateral in the form of Treasury securities that could be quickly liquidated in the event a counterparty defaulted on its obligations.  ABARBANEL, however, failed to obtain for the Fund the promised collateral to secure the investments.  Nonetheless, ABARBANEL repeatedly represented, in substance, that the Fund had possession of the collateral.

In or about May and June 2021, ABARBANEL failed to honor a redemption request by the Investor Group for the entirety of its outstanding investment, totaling more than $100 million, instead placing conditions on the redemption that were contrary to the Fund’s offering document and to the Fund’s practices with respect to prior redemptions.  On or about June 16, 2021, the Fund transferred more than $10 million in investor funds from the Fund to a personal brokerage account of an attorney working with the Fund.

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In addition to the prison sentence, OFER ABARBANEL, 48, of Woodland Hills, California, was ordered to forfeit $106 million and to pay restitution to victims in the amount of $106 million.

Mr. Williams praised the investigative work of the U.S. Postal Inspection Service.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Allison Nichols is in charge of the prosecution.