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Securities and Exchange Commission v. Thibeault

United States District Court, D. Massachusetts

January 21, 2015


For Securities and Exchange Commission, Plaintiff: Kathleen Burdette Shields, LEAD ATTORNEY, U.S. Securities and Exchange Commission, Boston, MA; Marc J. Jones, Martin F Healey, LEAD ATTORNEYS, Rebecca Israel, Securities and Exchange Commission, Boston, MA.

For Daniel Thibeault, Defendant: Ian D. Roffman, LEAD ATTORNEY, Nutter, McClennen & Fish, LLP, Boston, MA.


Nathaniel M. Gorton, United States District Judge.

This case arises from an alleged ongoing dissipation of at least $16 million in misappropriated investor funds by defendants Daniel Thibeault (" Thibeault" ), GL Capital Partners, LLC (" GL Capital" ), GL Investment Services, LLC (" GLIS" ), Graduate Leverage, LLC (" GL" ) and Taft Financial Services, LLC (" Taft" ) (collectively " defendants" ). Thibeault is the President and CEO of GL, the parent entity of GL Capital and GLIS. He was the founder and portfolio manager of the investment fund GL Beyond Income Fund (the " Fund" ) until December, 2014.

Plaintiff Securities and Exchange Commission (" the SEC" or " the Commission" ) contends that defendants have and still are engaged in 1) fraudulent or deceptive conduct in connection with the purchase or sale of securities in violation of Rule 10b-5 of the Exchange Act of 1934 (" the Exchange Act" ) and 2) fraud in the offer or sale of securities in violation of Section 17(a) of the Securities Act of 1933 (" the Securities Act" ). Moreover, plaintiff claims that Thibeault, GLIS and GL Capital have engaged in fraudulent or deceptive conduct while acting as investment advisers, in violation of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (" the Advisers Act" ).

Pending before the Court is the plaintiff's emergency motion for entry of a temporary restraining order (" TRO" ), which this Court construes as a motion for preliminary injunction 1) to prohibit the defendants from continuing to violate federal securities laws, 2) to freeze the assets of defendants and relief defendants, 3) to require the defendants and relief defendants to repatriate all proceeds of the fraud that are now located abroad, 4) to require the defendants and relief defendants to submit an accounting of investor funds and other assets in their possession, 5) to prevent the defendants and relief defendants from destroying relevant documents and 6) to authorize the SEC to undertake expedited discovery. For the reasons that follow, plaintiff's motion will be allowed.

I. Background

Defendant Thibeault is the principal of all the GL entity defendants: GL, GL Capital, GLIS and GL Advisor Solutions, Inc. (" GL Advisor" ), all of which are investment and financial advisory businesses. GL Capital is an investment adviser. GLIS is also an investment adviser and purports to have approximately 700 clients and more than $130 million in assets under management. GL Advisor is a Philippine corporation that engages in the origination and servicing of loans owned or controlled by GL and its affiliates. Plaintiff contends that Thibeault and/or GL also founded and control Taft, a purported loan origination company whose operation appears to be controlled by Thibeault and GL.

Thibeault created the Fund in March, 2012 and was its President and sole or co-portfolio manager for most of its existence until he was terminated by the Fund in December, 2014. GL Capital characterizes the Fund as providing investors with direct access to a portfolio of high credit quality consumer debt predominantly from young professionals. From January, 2012 to December, 2014, GL Capital was the sole investment adviser of the Fund.

The SEC alleges that at least as early as February, 2013, defendants engaged in a fraudulent scheme to create fictitious loans to divert investors' money from the Fund. Defendants' scheme allegedly involved the fabrication of paperwork purporting to reflect numerous six-figure consumer loans using the names and personal information of individuals who were unaware that loans were being originated in their names. For example, Thibeault had taken out a loan of just under $300,000 in the name of his former college roommate without his knowledge. When contacted about a loan statement that was inadvertently sent out, Thibeault allegedly told his former roommate's accountant " not to worry about it."

Fund money disbursed for those fictitious loans were first transferred to Taft, which served as an intermediary, and then into bank accounts of the defendants and the relief defendants rather than to the purported borrowers. The disbursements were used for the defendants' personal and business expenses and for making interest payments on outstanding fictitious loans. The fictitious loans allegedly bear a program code of " TA" in the Fund's records. As of December, 2014, there were 40 loans bearing the program code " TA," with an aggregate value of approximately $16 million.

The documentation maintained by GL Capital for the " TA" loans is missing in part and contains material inaccuracies. The purported " borrowers" birth dates are incorrect in at least 20 of the 26 loans for which promissory notes and other supporting documentation was produced by GL Capital. Such inaccuracies would make it virtually impossible to obtain accurate commercial credit scores for a purported borrower.

Between December, 2012 and November, 2014, approximately $8.5 million was transferred from GL's operating account at TD Bank to bank accounts in the name of relief defendant GL Advisor in the Philippines. The funds in GL's operating account in part paid for the monthly bills of an American Express card that was used by defendant Thibeault. The nature of the expenses on the American Express card, such as hundreds of dollars per month for videos on demand and e-reader purchases, thousands of dollars per month at the iTunes Music Store and purchases at home goods stores suggest that the card was sometimes used for personal expenses that also benefitted relief defendant Shawnet Thibeault, the wife of defendant Thibeault.

The whereabouts and disposition of much of money misappropriated from the Fund is currently unknown.

C. Procedural History

Plaintiff filed the instant lawsuit and emergency motion for a temporary restraining order on January 9, 2015. The Court held a hearing on the pending motion the following week.

II. Plaintiff's Motion for a Preliminary Injunction

A. Legal Standard

Generally, in order to obtain a preliminary injunction, the moving party must establish

(1) a substantial likelihood of success on the merits, (2) a significant risk of irreparable harm if the injunction is withheld, (3) a favorable balance of hardships and (4) a fit (or lack of ...

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