The founder and manager of an offshore mutual fund who admitted to defrauding investors has been sentenced to prison time and ordered to pay restitution of over US$100 million.
After pleading guilty to one count of investment advisor fraud, Ofer Abarbanel was sentenced to four years in prison. The U.S. district court judge who heard the case also ordered him to forfeit US$106 million, and to pay US$106 million in restitution to investors.
According to the allegations against him, Abarbanel told investors he would invest primarily in short-term Treasury securities. Instead, he diverted the funds to various counterparties for unauthorized trading.
He also told investors the fund would engage in securities lending and repo transactions to boost income, but misrepresented its posting of collateral to back those transactions.
When investors sought the return of their money in mid-2021, Abarbanel failed to meet the redemption requests.
“Ofer Abarbanel violated the trust placed in him by investors. He promised investors safe and liquid investments, but instead transferred their money to counterparties he controlled and engaged in risky investments he was not authorized to make,” said Damian Williams, U.S. attorney for the Southern District of New York, in a release.
“Today’s sentence should send a strong signal to investment advisors that violations of their fiduciary duties to investors will have consequences,” he added.
The U.S. Securities and Exchange Commission also brought civil charges against Abarbanel, and in early 2022 it amended those charges, alleging that the misconduct involving the mutual fund was part of broader fraud, designed to misappropriate money from investors.
The regulator obtained consent judgments against the fund, and another participant in the alleged scheme, which resulted in more than US$77 million being returned to harmed investors.