The Securities and Exchange Commission today announced that it has filed an emergency action charging an offshore fund and two individuals with engaging in a fraudulent scheme, and obtained an asset freeze to safeguard remaining investor funds at risk of immediate dissipation.
The SEC’s complaint alleges that from at least 2018 to the present, Ofer Abarbanel of California and Victor Chilelli of Delaware and New York have engaged in a scheme to defraud investors in an offshore mutual fund they controlled, the Income Collecting 1-3 Months T-Bills Mutual Fund. According to the complaint, Abarbanel represented to investors that the fund would invest primarily in U.S. Treasury securities and also enter into certain types of reverse repurchase agreements with U.S. Treasury securities serving as collateral. As alleged, however, the fund invested only minimally in U.S. Treasuries, and did not enter into any reverse repurchase agreements along the lines described in offering documents. Instead, the complaint alleges, the fund routed nearly all investor funds to shell companies under the defendants’ control as part of uncollateralized sham lending arrangements with the fund. According to the complaint, when investors sought to redeem $106 million in investments last month, the defendants refused and instead took steps to transfer funds to an account from which no redemptions could be drawn.
“As this emergency action shows, the SEC will move quickly to protect investor funds from potential dissipation and misappropriation,” said Carolyn M. Welshhans, Associate Director in the SEC’s Division of Enforcement. “We can detect misconduct and enforce the securities laws even where, as we allege happened here, fraudsters transfer and divert funds to shell companies.”
The SEC’s complaint, which was filed in federal court in the Southern District of New York today, charges Abarbanel, Chilelli, and the fund with violating the antifraud provisions of the federal securities laws and seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, and permanent bars against participating in future securities offerings. The complaint also names as relief defendants six companies that either acted as purported counterparties with the fund or received fund assets in furtherance of the scheme: Institutional Syndication LLC, North American Liquidity Resources LLC, Institutional Secured Credit LLC, Growth Income Holdings LLC, CLO Market Neutral LLC, and Global EMEA Holdings LLC.
The SEC’s investigation was conducted by Virginia M. Rosado Desilets, Gregory C. Padgett, Alexandra M. Arango, Andrew M. Shirley, and David F. Miller, and supervised by Ms. Welshhans, Adam S. Aderton, Co-Chief of the Asset Management Unit, and David A. Becker. The litigation will be led by Paul W. Kisslinger and Sarah Heaton Concannon under the supervision of Jan M. Folena.