Opulent Lite Manager Neil Godbole is barred from the securities industry for defrauding investors.
A San Francisco hedge-fund manager has been fined and barred from the securities industry for five years by the Securities and Exchange Commission for concealing $14.5 million in trading losses from his mostly Indian investors.
Neil Godbole, 29, who managed $30 million in assets for Opulent Lite, is the son of Navin Mail founder Vishwas Godbole, who manages the Opulent Fund and who founded Opulent Lite, before transferring it to his son. According to an SEC order issued on Dec. 1, Opulent Lite suffered its largest loss of $8.3 million in February 2008, which Godbole concealed from his investors. “Throughout 2008,” the SEC said, “Godbole continued to misrepresent the fund’s trading results and asset values,” overstating them by as much as 81 percent in December 2008.
The SEC said that Godbole falsely attributed the losses to a “'rollover strategy,’minimizing these declines as merely artificial ‘paper’ losses or ‘projected’ losses tied to open option positions. In reality, these losses represented actual, realized trading losses.” The SEC concluded that Godbole paid himself inflated management fees during the period he was falsifying the accounts. He reimbursed the fund for the overpaid management fees in February 2009 after the fraudulent scheme unraveled because its broker notified investors that it was dropping both funds.
The agency ruled: “Godbole willfully violated Sections 206(1) and (2), which prohibit fraudulent and misleading conduct by an investment adviser. He also violated Section 206(4) and Rule 206(4)-8 thereunder by providing false information to the fund’s investors."
The SEC sanctions also include the satisfaction by Godbole of any disgorgement orders and arbitration and restitution awards before readmission after the 5-year ban to engage in securities services.
Opulent Lite and Neil Godbole, as well as his father Vishwas Godbole and the Opulent Fund, are currently being sued by nearly 100 investors, mostly Indian technology professionals in the San Francisco Bay Area, who lost an estimated $20 million between the two funds in 2008. The claims are under arbitration. Opulent Lite restated its net unit value by over 50% and the Opulent Fund by almost 20% in February 2009, soon after their broker Charles Schwab dropped both funds, "due to questions about the valuation of the Funds and recent transactions between the Funds' accounts at Schwab," according to a Jan. 15, 2009 letter from Schwab Vice President Brian McDonald to investors in the fund.
According to the investor lawsuit, Neil Godbole and his father Vishwas Godbole deposited paper checks for $6.5 million each in each other's funds on the afternoon of Dec. 31, 2008 in a kiting scheme to inflate the values of both funds to cover up a $20 million shortfall. The lawsuit alleges: “Vishwas Godbole and Neil Godbole knew that the checks would clear on or after January 2, 2009 (January 1, 2009 being a bank holiday), as a result temporarily inflating both fund values, and covering up losses that the funds had sustained and defendants hidden from the plaintiff investors.”
The Opulent Lite Fund liquidated in February 2009 after a run by investors, many of whom lost more than half their investment. The Opulent Fund shriveled to a quarter of its size as panicked investors redeemed their accounts. The investors lawsuit accuses the two funds and members of the Godbole family, including, beside the father and son duo, Neil Godbole's sister Nina Kulick and her husband Aaron Kulick, of orchestrating “a systematic and organized family scheme,” as well as fraud, concealment, negligence and elder abuse.
Neil Godbole and Vishwas Godbole did not respond to Little India requests to comment on the SEC sanctions. Asked to comment on the criticism of some investors that the SEC sanctions constituted a slap on the wrist for egregious violations, his attorney Raissi demurred, noting that his client had cooperated with the SEC and has been "barred for five years and faces a large fine."
The Wall Street Journal reported that, "The San Francisco office of the Securities and Exchange Commission is seeking to crack down on illegal conduct by hedge funds and corporate bribery, activity that got pushed aside as regulators grappled with Ponzi schemes and subprime mortgage-related probes during the recent financial crisis" and that "The shift in focus is reverberating among Bay Area technology companies and financial-services firms."
Little India’s investigative piece on the lawsuit against the two funds is available here.
A profile of Neil Godbole’s over-the-top lifestyle is available here.
SEC’s Cease and Desist Order on Neil Godbole
The article has been updated on Dec 2.