- Bitran's scam was `razzle dazzle,' prosecutor tells judge
- Bitran accepts blame, says he could've stopped the scam
A former Massachusetts Institute of Technology professor was sentenced to three years and nine months for running a $500 million hedge-fund scam uncovered by investigators probing Bernard Madoff’s Ponzi scheme. His son Marco was given the same sentence.
Gabriel Bitran, who was an associate dean at MIT’s Sloan School of Management, and his son were accused of wooing investors to GMB Capital Management LLC with fake claims of success in managing family and friends’ accounts using a trading model based on his research.
Prosecutors have said Bitran and Marco raised more than $500 million from 2005 to 2011 on promises of using the special trading model, while putting much of the money into “funds of funds,” which rely on investments by other hedge funds. They fed some money to Madoff’s firm and Madoff feeder funds, according to prosecutors.
“It was a razzle dazzle and it was very effective because of who they were,” said Assistant U.S. Attorney Sara Bloom, who asked that they be given the maximum five-year term.
More than 60 supporters sent the judge letters urging leniency for Marco, including several from investors who lost money.
“Marco may have made a mistake, but at his core is a good human being,” wrote Micah Rosenbloom of New York. “I have forgiven Marco. I look forward to the day when we can resume our friendship with this behind him.”
Another 35 sent letters on behalf of his father, including several fellow academics.
“I know Gabriel has been suffering immensely over the past few years during this whole ordeal,” wrote Georgia Perakis, a professor of operations management at the MIT Sloan School of Management. “For someone with Gabriel’s character, all this is already a huge punishment.”
Gabriel Bitran told the judge he accepted responsibility and said he deserved more blame than his son.
“I was the older guy,” the 70-year-old said. “I was the fellow who could have stopped it.”
“I don’t think you intended to steal your client’s money, but it was very simple,” U.S. District Judge Mark Wolf said at the sentencing. “Your company was founded on fraud.”
Prosecutors said Monday in court that investors lost $120 million while defense lawyers put the losses at $4.5 million.
Wolf said $120 million seemed too high while the defense offered no rationale for its estimate.
Michael McCarthy, who said he and his relatives lost millions, urged the judge to impose the maximum sentence of five years to deter others.
“My family blames me for giving their life savings to you guys,” McCarthy, who told the court he retired in his 30s after successfully picking stocks, said at Monday’s hearing. “I can’t believe this was just pure greed. I don’t know why you did it. It absolutely baffles me.”
The Bitrans paid themselves as much as $16 million in management fees over the life of the businesses and recovered $12 million of their own investments when the funds were doing poorly, the U.S. said in court filings, adding that the two discussed their scheme in e-mail exchanges.
In addition to defrauding investors, the Bitrans lied to the U.S. Securities and Exchange Commission and sought to hide assets by transferring property to a relative without the relative’s permission, prosecutors said.
Gabriel Bitran was a professor from 1978 to 2013 at MIT, where he focused on research and consulting in the field of “optimal pricing,” according to prosecutors. Marco Bitran holds a bachelor’s degree from MIT and a master’s degree in business administration from Harvard Business School, prosecutors said.
“You both seem to know a lot of people who don’t mind losing a million or two,” the judge told the men. “But that’s not everyone.”
The case is U.S. v. Bitran, 1:14-cr-10243, U.S. District Court, District of Massachusetts (Boston).