Calif. Pair Heads To Prison In Hedge Fund Scam

Feb 26 2008 | 5:46am ET

A California hedge fund scam artists has been sentenced to five years in prison for his “dastardly fraud.”

Keith Gilabert pleaded guilty last year to defrauding investors of $7 million in his hedge fund, GLT Venture Fund. Earlier this year, he and his mother-in-law, Hiromi Seele, beat an obstruction of justice rap. But U.S. District Judge Stephen Wilson has now thrown the book at him in the fraud case.

“The sentence: he deserved every bit of it,” Wilson said of the sentence, the maximum allowed for the conspiracy, wire and securities fraud convictions. The judge said there was “a decent chance” he would have given Gilabert even more time were he able.

Wilson also sentenced Gilabert’s co-conspirator, former UBS Financial Services account vice president Justin Paperny, to 18 months in prison. Paperny, who also pleaded guilty, was rewarded for cooperating with prosecutors.

Both were also ordered to pay restitution to their victims: Gilabert will have to pay $1 million and Paperny $510,000.

“I made the choice to lie to my investors when things started to go wrong,” Gilabert told the court. “I was driven to lie because the market turned against me.”

Paperny sounded a more contrite note, promising to “repay every penny that was lost due to my conduct.”

Whether investors are ready to accept their apology is another matter.

“They robbed me of $400 million!” Sam Bronstein, a rabbi who said Gilabert and Paperny assured him that GLT was backed by UBS and sent him phony account statements, shouted in court. “Give them the highest penalty!”

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