GLT Venture Fund

This narrative contributed by Ann Logue.

Keith Gilabert, who operated the Capital Management Group Holding Company that managed a hedge fund, the GLT Venture Fund, raised $14.1 million from 38 investors beginning in September of 2001. The fund posted losses almost from the beginning, but it reported gains to investors. Gilabert charged his management fees based on the phony profits, and he also received commission kickbacks from one of the brokers with whom he did business. When investors made withdrawals, they received funds from new people coming in, not from the fund’s assets. There is also evidence that he mass-marketed the fund, in violation of the rules requiring unregistered funds to deal only with accredited investors. He is alleged to have been assisted by someone at a large brokerage firm. Gilabert pleaded guilty in April of 2006.

Ironically, as part of his marketing activities, Gilabert issued a press release in September of 2004 noting that hedge funds were not always risky. In it, he suggested that investors look for certain safeguards for their assets, such as funds being held at outside financial institutions and monthly statements listing every holding in the portfolio.

There were two warning signs that might have been uncovered in due diligence. The first is that the fund was not formed until 2000, but it claimed performance dating back to 1997. The second is that in 2003, the California Department of Corporations revoked Gilabert’s investment adviser registration.