Friday, August 15, 2014

Just a couple of degrees of separation from Bernie Madoff

I never took a course with him – he was in Operations Research* which, beyond the one required course, I avoided like the plague – but when I was a student at Sloan (MIT’s business school), Gabriel Bitran was a new faculty member. A lot of the folks I knew took courses with him.

Perhaps because he wasn’t much older than the students, I remember him as being quite popular. Because Sloan was so small at the time – maybe a hundred students, plus or minus, in our class; and very little hang around space that was shared pretty much equally by students, faculty, and admin – I’m sure I met him at some point or another, if only to say hello.

Well, Gabe Bitran, it seems, has gotten himself into quite the soup.

A couple of years ago – and I missed this one completely – Bitran and his son Marco, who’d been running a $500 million fund:

…agreed to pay $4.8 million to settle U.S. Securities and Exchange Commission claims that they lied to investors about their track record. (Source: Bloomberg)

Their Ponzi within a Ponzi unraveled during the Madoff debacle, because they:

…put money into “funds of funds,” which rely on investments by other hedge funds, and fed money to Madoff’s firm and Madoff feeder funds, according to prosecutors.

While Bitran père et fils were running GMB Capital Management into the ground – the fund lost more than $140 million over time, which is $140 million worse than money in a mattress – they were also paying themselves handsomely. (Surprise.)

The smoking gun on the Bitrans was some e-mail exchanges. (Duh! This is an MIT business school professor and he doesn’t get how e-mails can bite you in the ass. Yikes!)

“A person with experience and knowledge of the financial sector and a veteran professor of MIT should not have engaged in this type of behavior,” Gabriel Bitran said in an e-mail to his son in July 2009 that was cited by prosecutors. “I feel very embarrassed because we told them a story that was not true!”

Well, I guess embarrassed could be one way to look at. But, really, deeply ashamed and absolutely contrite might have been better.

For his part,

Marco Bitran said in a September 2009 e-mail to his father that “we are certainly sharing equally in this” and that “lots of problems were caused by my good intentions but very poor actions when it came to true honesty,” according to prosecutors.

“Good intentions but very poor actions when it came to true honesty.”

Huh? Talk about gobbledygook. This from someone with degrees from MIT and Harvard Business School. (I had to get this dig in . I’m not putting this all on MIT.) Tsk, tsk.

Oh, indeed, my intentions – make everyone a lot of money, especially me – were excellent, it was just that piss-poor execution. That and, oh yeah, lying through my teeth. And beyond:

After the SEC began its probe, the Bitrans took steps to shield their assets by transferring them out of GMB to other entities using the name of a family member who wasn’t aware of what they were doing, prosecutors said.

Mighty fine thinking there, boys, mighty fine. Bet that family member was just thrilled to death to be made part of the grand scheme.

Despite the fiasco that the Bitrans got themselves involved in, Marco apparently doesn’t share his father’s embarrassment. On his blog (which, admittedly, was last updated nearly a year back; but still well after he and his father agreed to the SEC fine), he brags:

..,Bitran grew an exchange-traded fund to $550 million in assets using models developed by MIT professor Gabriel R. Bitran and MIT graduate Shioulin Sam.

Well, he may be blogging from prison, because Gabriel and Marco Bitran, it seems, are about to each:

…plead guilty to one count of conspiracy to commit securities fraud, wire fraud and falsify documents and face a maximum sentence of five years in prison, according to agreements with prosecutors.

According to their lawyers, Gabriel “accepts responsibility” and Marco “looks forward to…putting [this matter] behind him.”

Say hello to Bernie for me.


*I remember nothing about OR, other than that we had to do some computations – by hand – involving some type of matrix, something called dual simplex, and something called pivoting. That and a case study called “Red Brand Canners” about optimizing the production of canned tomatoes. So clearly my education wasn’t wasted on me.

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