The United States Attorney's Office

Los Angeles, CA - A former account vice president at a major brokerage firm pleaded guilty today to conspiring with the founder of an investment company that operated a hedge fund to commit securities fraud.

Justin Paperny, 31, of Studio City, a former securities broker at an international brokerage firm, pleaded guilty to one count of conspiracy to commit mail fraud, wire fraud and securities fraud. As part of the guilty plea, Paperny agreed to cooperate with investigators in an ongoing criminal probe into the Valencia-based Capital Management Group and its GLT Venture Fund.

By pleading guilty, Paperny acknowledged that he helped his co-conspirator, Keith Gilabert, fraudulently operate the GLT fund and that he lied to investors to convince them to invest in the fund. Specifically, Paperny admitted that he conspired with Gilabert to mislead investors of Capital Management Group about GLT's performance history, the risk associated with investing in Capital Management Group, and the oversight of Capital Management Group by the major brokerage firm. Paperny admitted that, as a result of his conduct, more than 40 investors suffered losses of at least $2.5 million.

Paperny admitted that he received kickbacks from Gilabert during the course of the scheme. Paperny also admitted that he informed management and supervisors at the brokerage firm that GLT was not following its stated investment strategy, and that others at the brokerage firm were aware of Gilabert's fraudulent conduct.

Paperny faces a statutory maximum penalty of five years in federal prison when he is sentenced by United States District Judge Stephen V. Wilson on July 30.

Gilabert, who pleaded guilty last year to a conspiracy charge, is scheduled to be sentenced on July 23.

This case is the product of an ongoing investigation by the Federal Bureau of Investigation.

Release No. 07-031
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