U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20428 / January 14, 2008
Securities and Exchange Commission v. Justin M. Paperny, Case No. CV-08-00213-CAS (VBKx) (C.D. Cal.)
SEC Files Settled Action Against a Former Southern California Broker in a Multi-Million Dollar Hedge Fund Fraud
The Securities and Exchange Commission today filed a complaint charging a former broker with UBS Financial Services, Inc. for his role in a hedge fund fraud. The broker, Justin M. Paperny, age 36, of Studio City, California, agreed to settle the charges, without admitting or denying the allegations, by consenting to a permanent injunction and agreeing to pay disgorgement with prejudgment interest and a civil penalty in amounts to be determined.
The Commission's complaint alleges that, from 2002 through 2004, Paperny participated in a fraudulent offering of limited partnership interests in a hedge fund, the GLT Venture Fund, L.P., which raised $14.1 million from 42 investors. The complaint alleges that Paperny was GLT's broker and that he falsely told GLT investors that GLT had access to highly sought after initial public offerings and achieved high average yearly returns. In reality, GLT had no access to hot IPOs and suffered substantial losses because of its hedge fund manager's poor trading and his misappropriation of investor funds. The complaint also alleges that Paperny knew that GLT's fund manager made similar false claims to investors but that Paperny nevertheless aided and abetted the hedge fund manager's fraud. Specifically, the complaint alleges that Paperny arranged for new GLT investors to place their funds in GLT through UBS Financial and executed thousands of GLT's securities trades, using funds of GLT and its investors who, Paperny knew, were being defrauded by the fund manager. In exchange, Paperny received approximately $220,000 in commissions and in additional payments from the hedge fund manager.
To settle the Commission's charges, Paperny consented to the entry of a judgment permanently enjoining him from future violations of 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 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Paperny also agreed to pay disgorgement with prejudgment interest and a civil penalty in amounts to be determined.
The Commission previously filed an enforcement action against GLT's hedge fund manager and the company through which he operated. SEC v. CMG-Capital Management Group Holding Co., LLC and Keith G. Gilabert, Civil Action No. CV-06-2595-GHK (Ex)(C.D. Cal.). The Commission obtained complete relief in the previous action. For additional information, see Lit. Rel. No. LR-19680 (May 1, 2006) and Exchange Act Rel. No. 55785 (May 18, 2007).