U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19680 /May 1, 2006
Securities and Exchange Commission v. CMG-Capital Management Group Holding Company, LLC and Keith G. Gilabert, Case No. CV 06-2595 GAF (Ex) (C.D. Cal.)
SEC Charges Southern California Hedge Fund Manager and His Firm in a Multi-Million Dollar Securities Fraud Scheme
The Securities and Exchange Commission today filed a complaint charging a Valencia, California hedge fund manager with misappropriating funds and misleading investors about the hedge fund's returns. Named in the complaint are CMG-Capital Management Group Holding Company, LLC and its principal, Keith G. Gilabert, age 34.
The Commission's complaint alleges that, from September 2001 to January 2005, the defendants offered and sold limited partnership interests in a purported hedge fund called The GLT Venture Fund, L.P., raising $14.1 million from at least 38 investors. CMG was GLT's investment adviser, and Gilabert was CMG's portfolio manager. The Commission's complaint alleges that CMG and Gilabert claimed that, under their direction, GLT would use investor funds to establish a portfolio of stocks and options, seeking returns through long-term appreciation, short-term trading, and hedging strategies. They also claimed that GLT had generated average annual returns of 19% to 36% and that they would only receive performance-based compensation if GLT was profitable. The complaint alleges that the defendants' representations were false and misleading in that GLT actually lost $7.8 million rather than achieved the represented returns; CMG and Gilabert misappropriated nearly $1.7 million for their own personal purposes, because GLT was never profitable; the defendants also misused $4.6 million in new investor funds to pay existing investors, operating a Ponzi-like scheme; and the defendants failed to disclose that CMG's investment adviser registration was revoked in 2003 by the California Department of Corporations.
The complaint, which was filed in the United States District Court for the Central District of California, alleges that CMG and Gilabert violated the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint further charges that Gilabert violated the broker-dealer registration provision, Section 15(a) of the Exchange Act. The Commission seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each of the defendants.
Also today, the United States Attorney's Office for the Central District of California announced that Gilabert had agreed to plea guilty in connection with the same matter to charges of conspiracy to commit mail, wire, and securities fraud.