Ex-MIT Professor’s Judge Weighs Madoff-Linked Scam PleaJanelle Lawrence and Christie Smythe
A former Massachusetts Institute of Technology professor who pleaded guilty today to running a $500 million hedge-fund scam uncovered by investigators probing Bernard Madoff’s Ponzi scheme will have to wait until March to learn whether that will end the case.
Gabriel Bitran, who was a professor and associate dean at MIT’s Sloan School of Management, and his son Marco pleaded guilty today under deals with federal prosecutors in Boston. They 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 the father’s research.
U.S. District Judge Mark L. Wolf said he will wait until sentencing, set for March 27, to decide whether to accept their agreements to plead guilty to a conspiracy charge, raising the possibility that their deals could be thrown out.
Each man faces from two to five years in prison under their plea deals for running a hedge fund scam that cost as many as 100 investors more than $140 million.
After Assistant U.S. Attorney Sara Bloom described the scheme in court, Gabriel Bitran told the judge, “We have different interpretations” of facts at issue in the case, without providing specifics.
“I don’t want to give you the impression we in any way are trying to get away from the fact we did commit the fraud that is described,” Bitran said.
Prosecutors have said the men raised more than $500 million from 2005 to 2011 on promises of using a 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.
The Bitrans’ funds suffered losses of more than $140 million. The men 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, Bloom said.
Bloom told the judge that the men face maximum restitution demands of $140 million. She said the men have already begun turning over assets and have agreed to relinquish 10 percent of their gross income each year after release from prison.
Prosecutors announced the charges in August, and lawyers for the men said their clients were planning to plead guilty and were looking forward to resolving the matter.
“I very much want to plead guilty and accept responsibility for what happened,” Marco Bitran told Wolf today.
Under the type of plea agreement used, the judge must accept or reject the entire deal when imposing the sentence and can’t make changes, said Mark Pearlstein, a lawyer for Bitran, said in an e-mail. It’s customary for judges to wait to make decisions on accepting such deals, he 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.
The case is U.S. v. Bitran, 1:14-cr-10243, U.S. District Court, District of Massachusetts (Boston).