SEC Inspection Staff Uncovers A Possible Fraud

The SEC claims that an individual that controlled several entities including an investment fund created phony consumer loans to funnel investor cash to his faltering financial operations rather than investing the money in actual loans in accord with the representations made to investors. The complaint is the result of an inspection by the Commission’s staff. It alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Sections 206(1) and (2). SEC v. Thibeault, Civil Action No 1:15-cv-10050 (D. Mass. Filed Jan. 9, 2015).

The action names as defendants: Daniel Thibeault, President, primary owner and CEO of defendant Graduate Leverage, LLC; Graduate Leverage, founded by Mr. Thibeault in 2003, operates multiple investment and financial businesses; GL Capital Partners LLC is a registered investment adviser primarily owned by Graduate Leverage; GL Investment Services, LLC is a registered investment adviser whose sole member is Graduate Leverage; and Taft Financial Services, LLC which is “nominally” run by Eric Kratzer but on “information and belief” is controlled by Mr. Thibeault.

The GL Beyond Income Fund was created by Mr. Thibeault in 2012. He served as the portfolio manager or co-manager. It is a closed end management company which purchases consumer loans. The Fund’s daily valuation report for December 8, 2014 lists about $35.65 million in consumer loans. It also claims to hold about $385,000 in U.S. equities and $6.55 million in promissory notes issued from the Fund to an entity named LAOH Capital LLC. The fund listed its total assets as of December 8, 2014 as $423.585 million.

In early 2013, Mr. Thibeault initiated a scheme, on information and belief according to the complaint, to use the Fund’s money to support his faltering financial advisory business. That business included Graduate Leverage. As part of the scheme fictitious loans were created with the proceedings being transferred to Taft Financial which then forwarded the funds to Graduate Leverage. Mr. Kratzer, on information and belief, facilitated the transfers.

To conceal the scheme, forged promissory notes in the name of real investors who did not request a loan were prepared. Periodic interest payments were made at the direction of Mr. Thibeault to make the notes appear to be genuine. It “appears,” according to the complaint, that about two-fifths of the Funds reported assets consisted of fictitious loans.

On December 8, 2014 during an examination of GL Capital the Commission’s inspection staff requested that certain promissory notes and related documents be produced. Only six promissory notes were produced over two days. The loan documents produced contained false information regarding the borrowers. The promissory notes, in many instances, contained incorrect information. At least one of the loan borrowers was unaware that a loan had been taken out in his name. During the examination Mr. Thibeault made misrepresentations regarding the loans to the staff.

Following the inspection the FBI executed a search warrant at the offices of the defendants. Requests for freeze orders and other relief are pending.

The case is pending. See Lit. Rel. No. 23171 (Jan. 9, 2015).

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