Manhattan U.S. Attorney Announces Securities And Wire Fraud Charges Against Founder And Manager Of Mutual Fund

 Audrey Strauss, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today that OFER ABARBANEL was arrested this morning in Los Angeles, California, and charged with securities fraud and wire fraud in connection with ABARBANEL’s scheme to defraud investors in a mutual fund he founded and controlled.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Ofer Abarbanel conducted a bait-and-switch, promising investors safe and liquid investments but instead transferring their money to risky counterparties to trade for his own benefit and that of his confederates.  His alleged scheme has now been uncovered and he will have to answer for his alleged lies.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Postal Inspectors remind investors to thoroughly review all lucrative offers as well as their fund managers.  In this case, as alleged, Mr. Abarbanel devised a scheme to defraud investors with bogus claims of liquidity and collateral, when in fact he did not use investors’ funds as promised and did not acquire the promised collateral.  Our advice is to trust your gut, and remember that where there is high reward, there is high risk.”

According to the Complaint[1] unsealed today Manhattan federal court:    

From at least in or about 2018 through the present, ABARBANEL engaged in a scheme to defraud investors in a mutual fund he founded and controlled (the “Fund”).  ABARBANEL falsely represented to an investment adviser to a group of investors (the “Investor Group”) that investments in the Fund would be placed “primarily” in short-term United States Treasury Securities having maturities less than or equal to three months.  Contrary to these representations, the vast majority of the investors’ funds were not invested in short-term treasuries.  Instead, immediately after the Investor Group’s investment was received by the Fund, ABARBANEL and his confederates transferred the investor funds to counterparties controlled by or otherwise closely associated with ABARBANEL, for use, among other things, in trading not authorized by the Fund’s offering documents and for the benefit of ABARBANEL and the counterparties.

ABARBANEL further represented that, in order to enhance income, the Fund intended to invest in securities lending transactions as well as repurchase and reverse repurchase agreements.   ABARBANEL represented, as to these transactions, that the Fund would receive, in its possession and control, safe and secure collateral, in the form of treasury securities that could be quickly liquidated in the event a counterparty defaulted on its obligations.  ABARBANEL, however, failed to obtain for the Fund the promised collateral to secure the investments. Nonetheless, ABARBANEL repeatedly represented, in substance, that the Fund had possession of the collateral.  

In or about May and June 2021, ABARBANEL failed to honor a redemption request by the Investor Group for all of its outstanding investment, totaling more than $100 million, instead placing conditions on the redemption that were contrary to the Fund’s offering document and to the Fund’s practices with respect to prior redemptions.  On or about June 16, 2021, the Fund transferred more than $10 million in investor funds from the Fund to a personal brokerage account of an attorney working with the Fund. 

ABARBANEL will be presented later today in federal court in Los Angeles.

ABARBANEL, 46, a dual U.S.-Israeli citizen who resides in Woodland Hills, California, is charged with one count of securities fraud and one count of wire fraud.  The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense.  The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. 

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the investigative work of the USPIS and thanked the SEC, which has filed civil charges against ABARBANEL in a separate action.  She added that the criminal investigation is ongoing.

The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations and every fact described should be treated as an allegation.