HMC Hedge Fund Founder Grebow Sentenced to Four Years in Fraud

Date: Friday, March 20, 2009
Author: David Glovin, Bloomberg

Bret Grebow, co-founder of hedge fund HMC International LLC, was sentenced to four years in prison for defrauding investors out of $7.8 million in what prosecutors said was “a classic Ponzi scheme.”

Grebow, of Highland, Florida, was also ordered to forfeit $7.8 million after pleading guilty last year to investment adviser fraud. U.S. District Judge Barbara Jones in Manhattan imposed the sentence. Grebow, 33, faced a maximum prison sentence of five years.

“He was very remorseful,” defense attorney Vincent Gelardi said in an interview after today’s sentencing. “He was young at the time. He lost control of the situation.”

Grebow must surrender to prison on June 22, Gelardi said. He established Montvale, New Jersey-based HMC around 2001 to engage in “momentum trading” in stocks, in which he falsely claimed to have generated returns as high as 70 percent, prosecutors said in a statement last year. There were no such returns.

“Grebow operated HMC as a classic Ponzi scheme, using new investor funds to pay distributions and redemptions to existing investors,” prosecutors said.

HMC collapsed in September 2005, unable to pay investors who demanded their money back.

SEC Lawsuit

In January 2007, Grebow and fund co-founder Robert Massimi agreed to pay a total of $4.6 million to settle a U.S. Securities and Exchange Commission lawsuit accusing them of defrauding their investors. Massimi wasn’t criminally charged.

Grebow, who was the only trader at now-defunct HMC, agreed to pay $3.1 million, including forfeited profits, interest and a fine, the SEC said in a statement at the time. Massimi, who managed the fund, will pay $1.5 million, the SEC said at the time.

The SEC sued Grebow and Massimi in December 2005, claiming they had tricked about 80 individuals into investing $12.9 million with HMC starting in 2001. They told investors the fund was engaged in “low-risk day trading,” when in fact the two men were running a Ponzi scheme, using money from new investors to pay off earlier ones, the SEC said.

The men also misappropriated more than $5 million for their own use, the agency said. Grebow bought a $160,000 Lamborghini Gallardo and chartered a flight to take his friends to the Super Bowl, according to a 2004 newspaper article cited in the SEC complaint.

The case is U.S. v. Grebow, 06-cr-00775, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.