The US Securities and Exchange Commission has filed an emergency action charging a Cayman fund and two individuals with defrauding investors. The SEC said it obtained an asset freeze to safeguard the remaining investor funds at risk of immediate dissipation.
The SEC’s complaint, filed in federal court in the Southern District of New York on Monday, alleges that, since at least 2018, Israeli Ofer Abarbanel of California and American Victor Chilelli 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 was registered in Cayman in February 2017.
According to the complaint, Abarbanel purported the fund would invest primarily in US Treasury securities, and enter into reverse repurchase agreements with US Treasury securities serving as collateral.
But the fund invested only about 1% in US Treasuries and did not use any reverse repurchase agreements as described in the offering documents.
Instead, the complaint alleges, the fund routed nearly all investor funds to shell companies under the defendants’ control as part of uncollateralised sham lending arrangements with the fund.
When investors sought to redeem US$106 million in investments last month, the defendants refused, offered to return only a ‘fraction’ of the funds, and then, on 4 June, moved $64 million to a brokerage account from which no redemptions could be made, the SEC complaint said.
Quick action by SEC
“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 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 further names six companies as relief defendants alleging that they either acted as purported counterparties with the fund or received fund assets in furtherance of the scheme. They are 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 complaint stated that “Abarbanel controls bank accounts in at least Israel and Singapore, and likely the Cayman Islands and the Bahamas, in his name and in the names of the Fund and Relief Defendants ISC, T-Bill Securities, CLO, and EMEA”.