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FBI Arrests Alt Fund Manager on Securities Fraud Charges

A traditional mutual fund buys and holds securities, such as stocks or bonds. But in recent years, many investors have flocked to so-called alternative mutual funds (alt funds), which rely on one or more non-traditional investments or trading strategies. Although similar to hedge funds, alt funds are still considered mutual funds, which means they are publicly traded and must be registered with the U.S. Securities and Exchange Commission.

United States v. Thibeault

Alt funds have made headlines recently due to the recent arrest of a well-known fund manager. On December 11th, the Federal Bureau of Investigation arrested Daniel Thibeault, the co-manager of the alt fund GL Beyond Income, on charges of securities fraud. Thibeault pleaded not guilty during at arraignment and was released on $700,000 bail. His next scheduled court date is on January 2, 2015.

Rather than invest in stocks or bonds, the GL Beyond Income Fund purported to invest in loans to recent graduates of top medical, dental and veterinary schools. As one news report put it, “The pitch is that these loans to high achievers are less susceptible to economic downturns than market-based investments.” According to the U.S. Attorney’s office in Boston, GL Beyond held net assets of about $31 million as of the beginning of 2014.

There is nothing illegal about a mutual fund based on consumer loans. The problem, according to the U.S. Attorney and the FBI, was that Thibeault was not actually loaning money to cash-strapped graduate students: “Thibeault caused the Fund to issue, or acquire, a number of fictitious loans to individuals who never requested and did not, in fact, receive such loans.” Prosecutors said earlier this year, GL Beyond inadvertently sent an account statement to Thibeault’s former college roommate, who never took out a loan.

According to Jennifer Hale Keenan, the FBI special agent in charge of the case, Thibeualt caused more than $36 million in loans to be issued from GL Beyond Income to an intermediary, who in turn paid the money to another account controlled by the Fund. In essence, Thibeault was using investor funds to loan money to himself. Keenan said the FBI was not entirely clear on where all this money went, although Thibeault apparently financed all of GL Beyond’s operations himself.

Of course, it is important to emphasize these are simply allegations. As noted above, Thibeault has pleaded not guilty and is presumed innocent unless convicted in a court of law.

Are Alt Funds Safe?

Still, the federal case against Thibeault may lead investors to wonder about the safety of alt funds like GL Beyond Income. In 2013, the Financial Industry Regulatory Authority issued an “Investor Alert” on the subject. FINRA advised consumers to “do your homework and comparison shop” before investing in any alt fund. Among the factors FINRA said investors should consider: the alt fund’s investment structure, strategy risk factors, investment objectives, operating expenses, the experience of the fund manager, and the fund’s overall performance history. This final criteria can be especially tricky, as FINRA noted most alt funds have only been in business a few years.

All investments carry some risk. But that risk should never include deliberate fraud by a fund manager. If you have believe you are a victim of securities fraud, contact the office of Gregory Tendrich, P.A. today to speak with an experienced Florida securities fraud attorney.

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