SEC Amends Complaint in Fraudulent Mutual Fund Case and Settles with Two Defendants – Ofer Abarbanel – Victor Chilelli
Securities and Exchange Commission v. Ofer Abarbanel et al., No. 21-cv-05429 (SDNY filed June 21, 2021)
Washington, DC (STL.News) The Securities and Exchange Commission has amended the complaint in its civil fraud case to bring additional charges against California resident Ofer Abarbanel and others, and also obtained consent judgments against two other participants in the scheme resulting in more than $77 million being returned to harmed investors.
The SEC’s initial complaint in this matter, filed in June 2021, alleged that Ofer Abarbanel and Victor Chilelli engaged in a scheme to defraud investors in an offshore fund, the Income Collecting 1-3 Months T-Bills Mutual Fund, beginning in March 2018. As described in the complaint, after promising to invest in US Treasury securities and reverse repurchase agreements, the defendants instead routed fund assets to shell companies under their control as part of uncollateralized sham lending arrangements. The SEC charged Abarbanel, Chilelli, and the Income Collecting Fund with violating the antifraud provisions of the federal securities laws, named as relief defendants six companies that received investor assets in furtherance of the scheme, and obtained an asset freeze to safeguard the remaining investor funds.
On January 27, 2022, the SEC amended its complaint, alleging that the course of conduct relating to the Income Collecting Fund was part of a broader fraudulent scheme. As alleged, beginning in approximately March 2017, Abarbanel and others under his direction also employed a scheme to deceive and defraud investors in an SEC-registered mutual fund, State Funds – Enhanced Ultra-Short Duration Mutual Fund, by entering into uncollateralized loan transactions with shell companies that the defendants controlled and misappropriating investor funds for high-risk trading and other unauthorized purposes. The amended complaint adds New York Alaska ETF Management LLC, the previously registered investment adviser to State Funds, as a defendant.
The amended complaint, filed in federal court in the Southern District of New York, charges Abarbanel, Chilelli, New York Alaska, and the Income Collecting Fund with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, charges Abarbanel and New York Alaska with violating the antifraud provisions of Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder and Section 34(b) of the Investment Company Act of 1940, and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.
On January 31, 2022, the district court entered a final consent judgment enjoining the Income Collecting Fund from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordering it to pay disgorgement and prejudgment interest of $111,591,312, which shall be deemed satisfied by the distribution of no less than $76,944,775 to harmed investors.
On February 25, 2022, the district court entered a consent judgment enjoining Chilelli from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, imposing a permanent bar against participating in future securities offerings and ordering him to pay disgorgement and prejudgment interest of $4,939,733, which shall be deemed satisfied by the distribution of all funds in the accounts of certain relief defendants to harmed investors.
The SEC’s continuing litigation is being conducted by Paul W. Kisslinger under the supervision of Olivia S. Choe.