Keith Gilabert Pled Guilty. That’s A Fact.

Update: Convicted felon Keith Gilabert sued me over this post. The suit has been dismissed, and he must pay my legal fees. See details here.

I do guest-blogging occasionally to promote my books. When Hedge Funds for Dummies came out, I wrote a post for the Hedge Fund Implode-o-Meter about some of the hedge fund scandals of the day.

Here’s what I wrote on that site in 2007:

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.

Last week, Gilabert sent a letter to Aaron Krowne, who operates the Hedge Fund Implode-o-Meter, claiming that this post was defamatory. Krowne took the post down and replaced it with more information, including the letter from Gilabert. I agreed to move the original post here, because I stand behind what I wrote. It is all backed by primary sources, specifically a complaint by the US Securities and Exchange Commission, the cease and desist order from the California Department of Corporations, and Gilabert’s own guilty plea as reported by the US Department of Justice. In fact, one of the issues that Gilabert says is defamatory is my reference to a press release issued in 2004 that is still available online and through Lexis-Nexis.

I’m not the only person who has reported this. The Los Angeles Times reported a similar story in 2006.

I’m not interested in picking a fight with Keith Gilabert, but I did not post anything false and malicious. Aaron Krowne gave me a platform to promote my book, and I appreciate it. It was all in the interest of making readers aware of the importance of doing good due diligence before investing in a hedge funds.

To reiterate: Keith Gilabert pled guilty to operating a fraudulent hedge fund and lying to investors in an effort to convince them to invest with his fund. He admitted that from September 2000 through January 2005, his firm purported to offer investments in GLT and collected more than $7 million from more than 40 investor-clients. Even though he claimed average annual returns of 27 percent, since at least 2002, Gilabert concealed the fact that he had lost most of the investors’ funds and that he had misappropriated investors’ funds throughout most of GLT’s operation.

Like the song says, don’t do the crime if you cannot do the time.

Also: Annie Logue knows how to do research using such primary sources as government documents. That, too, is a fact.

Finally, another fact: the statute of limitations for libel claims in California is one year. It’s now 2011, four years after I wrote the post for the HF Implode-o-Meter.