Monday, December 15, 2004
On December 15, 2004, four years ago today, my branch manager in UBS Century City, summoned me to his office overlooking historic Los Angeles Country Club, to discuss the GLT Venture Fund. The resonance in his voice indicated something terrible had happened. I always knew this day would come, yet I wasn’t prepared. Initially, I remained calm, as I heard the allegations against my client. My mood shifted. I lost total focus after hearing the words SEC (Securities and Exchange Commission) Investigation. In a haze I believe I also heard the words, ‘alleged criminal conduct’ which buckled my knees. For several minutes I repeated (inwardly) the same phrase, “And so it begins, my life will never be the same” I never imagined that four years later I’d still be paying for my mistakes, while serving time in a federal prison.
The GLT Venture Fund was a small hedge fund I had cultivated as an account. I had known the manager, Keith Gilabert, before he launched his hedge fund, as we shared office space at Crowell, Weedon where Keith began his career as a broker. I knew him to hold a loose code of ethics then, yet such perceptions did not dissuade me from accepting the GLT Venture Fund as an account and source of trading commissions.
My eventual criminal conviction may have had its roots in the demise of my values that actually pushed me over the line.
The GLT Fund was a relatively small hedge fund with only 5 million under management. Yet, Keith was perhaps the worst stock picker in the history of money management. Keith’s losses with the GLT Fund were so magnificent that they spawned a new trading strategy for my partner, Kenny. “If Keith goes long a stock”, Kenny instructed me, I want you to sell it short. If he shorts a stock, take it long immediately.” We didn’t need to know anything more about an investment other than the position Keith had taken. His fund lost money for investors with every undisciplined trade, although through false representations to prospective clients, he continued to bring new money into the account. He generated substantial commissions, some times surpassing six figures in a single month.
In time, the GLT Fund reduced itself to a Ponzi scheme. That intention to defraud may not have existed at the outset. Keith likely set out to achieve returns for investors in the fund. He speculated, combining investor money with borrowed funds, using three-to-one leverage. Margin loans we made available at UBS, in other words, allowed Keith to ——- 15 million dollars on stocks when he had only 5 million of investor equity. With Keith’s track record of taking losing positions, investor money evaporated faster than an early morning mist.