Student-loan advising company in trouble

Graduate Leverage LLC accused of investor fraud

March 12, 2015 (published)
By Edie Lau

A company that markets financial services to professionals with high educational debt, including veterinarians, physicians and dentists, is in turmoil following the arrest of its president, CEO and co-founder Daniel Thibeault on criminal fraud charges.

The principal owner of Graduate Leverage LLC — commonly known as GL Advisor, the name of one of its divisions — was arrested Dec. 11 on suspicion of deceiving investors in a scheme involving the issuance of fictitious loans, according to an FBI news release. Thibeault was indicted on Feb. 25 by a grand jury on one count of securities fraud, three counts of wire fraud, three counts of aggravated identity theft and one count of obstruction of justice. The maximum penalty for a securities fraud conviction alone is a fine of $5 million and 20 years in prison.

Thibeault pleaded not guilty to all charges during arraignment Monday.

The Securities and Exchange Commission is pursuing a civil suit against Thibeault, Graduate Leverage and associated businesses, as well, based on the same allegations, including misappropriation of $16 million in investor funds. Both cases are being heard in U.S. District Court in Massachusetts.

A web of businesses run by Thibeault, a 40-year-old resident of Framingham, Massachusetts, dispensed financial advice, serviced loans and managed assets, among other things. The allegations potentially harm GL investors most directly, but the legal troubles affect multiple related operations and their employees.

One GL Advisor regional manager, Brandon Barfield, told the VIN News Service last week that he no longer is with the company. “In fact,” Barfield said, “most of the employees have left.”

Early this week, calls to Graduate Leverage’s base in Waltham, Massachusetts, went immediately to voice mail. By midweek, the lines were dead. Telephone and email messages for Thibeault went unanswered, as did messages to GL Advisor media contact Khristine Sy. One of Thibeault’s lawyers, Matthew Connolly, asked by telephone Wednesday whether Graduate Leverage was still in business, replied, “I’m sorry, I can’t comment,” and hung up.

The criminal charges and a court-ordered freeze on company assets spurred an employee class-action suit against Graduate Leverage and Thibeault for failure to pay wages, commissions and vacation benefits. The suit, filed Feb. 19, portrays an organization in disarray:

“On December 10, 2014, GL effectively shuttered operations when the FBI raided the Waltham offices and froze various assets belonging to the defendants.”

The suit states that at the time of the FBI raid, the Waltham office had about 30 employees. “On Feb. 6, 2015, the defendants did not pay any of its employees,” the complaint recounts, a failing that prompted employee defections.

A public-relations contractor who handled publicity last year for the investment fund dubbed the GL Beyond Income Fund told the VIN News Service that his company parted ways with Thibeault two months before Thibeault’s arrest.

“I’ve never been so thrilled not to be working with a client, to be honest with you,” said FiComm founding partner Jason Lahita. “He’s got to do what he’s going to do in a court of law — innocent until proven guilty. But to represent someone in that situation is not what we do. We don’t paste over things or spin things. We work with the good guys.”

Whether Graduate Leverage will be revived is unclear. Trustees of the GL Beyond Income Fund, the fund into which investors put money and from which loans were made, ended ties with Thibeault and are engaging a different entity to service loans, according to the SEC.

Who will handle that job and when is uncertain. JoAnn Strasser, attorney for the GL Beyond Income Fund, said by email on Monday: “It’s a bit premature to provide info on the replacement loan service company, but if you check with me in a few weeks, I should have info for you. The trust is trying to get the phone situation resolved, as well.”

The GL Advisor website is still up and its Facebook page shows a fresh post today reading, “We welcome inquiries through the online contact form.” (A VIN News Service message sent Wednesday using the form drew no reply.)

In legal action on top of the federal criminal and civil cases and the employee class action, three trustees of the GL Beyond Income Fund are suing Thibeault and two of his businesses, alleging a long list of offenses, including breach of fiduciary duty; recklessness and gross negligence; and unjust enrichment. The complaint is filed in Massachusetts Superior Court.

Startup touted trust as its asset

Thibeault founded Graduate Leverage in 2003 with four fellow students of Harvard University Business School. The young entrepreneurs started with a website and toll-free telephone number, dispensing information to students and graduates about the often confusing realm of educational debt, according to a Feb. 5, 2004, article in the Harvard Gazette. The startup also partnered with lenders to offer loan-consolidation services.

As students with their own debt, the businessmen believed they possessed “a rare commodity in their industry: trust,” the article reads. “They insist they’re focusing on educating fellow students about loans rather than on a quick grab of the fees associated with consolidation.”

The article continues, “Although their business aims to make a profit ... Graduate Leverage’s educational mission also taps the founders’ social conscience to make a difference. … [T]hey’ve created partnerships with two organizations — Idealist and Net Impact — that target people interested in nonprofit and socially responsible careers. They’re also committed to visiting 15 historically black colleges, even though the relatively small numbers at those colleges may not yield many customers.”

In time, the enterprise came to focus on graduates of professional school, particularly the medical professions, in which six-figure educational debt is the norm. The idea was that such professionals, once they put their debt to rest, would want help managing their wealth — one option on Graduate Leverage’s expanding menu of services.

Early on, a number of veterinarians enthusiastically endorsed the company's work. This post by Dr. Amanda Favis in 2008 on a message board of the Veterinary Information Network, an online community for the profession, is typical:

“I used them (2006 grad) and had a great experience.Very helpful on the phone, quick to return phone calls and they got me a great deal on my loans (paying about half as much a month as I would have going through traditional consolidation). Overall — can't say enough good about them.”

In a recent interview by email, Favis said she ended contact with Graduate Leverage a year or two after the consolidation, when her loans were sold to another company. “Definitely surprised to hear the news about the fraud, but a lot can change in almost 10 years,” she commented.

The operation did change greatly in expanding its realm. According to the SEC suit, it operated “multiple investment and financial advisory businesses, including GLIS, GL Capital, GL Insurance Services, LLC, and PeakFolio LLC. GL does business under several different names, including GL Loan Servicing, GL Holdings Corp., GL Capital Management, GL Advisor LLC and GL Advisory Services.” One of its offices, bearing the name GL Advisor Solutions, is in the Philippines and had 130 employees when the complaint was filed in January.

As it grew, observers perceived GL faltering in service. Heather Jarvis, an authority on educational debt, used to cite the company as a possible helpful resource for new graduates grappling with student debt. “I stopped mentioning them to borrowers a year or so ago because I noticed their service getting spotty and was concerned they were expanding too fast,” Jarvis said.

In a Dec. 31 posting on the website, a veterinarian identified as Mike described how service deteriorated from the time he signed on with the company four years ago to the present:

“At the time, their model was great; for a mere $400/year they would shift through all of that paperwork to find me the best re-payment option for my heavy student loan burden, consolidate my loans and even do my taxes. I was so thrilled with their services I even began referring many of my friends to them.

“Over the next several years, however, things began taking a dramatic turn. For one, they stopped doing taxes and switched loan advisors on me a total of five (yes, five) times in the span of a few years before doing away with personal advisors altogether. I should have seen the red flags there, but naively, I was talked into having them manage my portfolio through the financial-investment side. The same thing began happening on that end as well; several financial advisors would come and go, and I would have to explain my situation to each new advisor who was completely unfamiliar with my portfolio and financial goals. Fast forward to the present, where one of the mutual funds they had praised and had me invest in is now under INVESTIGATION BY THE SEC!”

In another case of exasperated clients, a married couple of veterinarians discovered that GL had filed paperwork on their behalf — erroneously — long after they told the company they no longer needed its services.

Dr. Matthew Bailey, a private practitioner in North Carolina, and his wife, Dr. Kate Bailey, a clinical assistant professor of anesthesiology at North Carolina State University College of Veterinary Medicine, hired GL in 2010. They experienced “nothing but problems,” he recounted on a VIN message board. “… we ended up doing twice as much work fixing their mishaps. My latest fiasco has them filing us for IBR (income-based repayment) almost two years since we have paid them to do anything!”

Bailey said the couple’s financial situation has improved such that they are able to follow a standard loan repayment plan, “so having them randomly file an IBR application has resulted in at least four hours of work for my wife, calling, being placed on hold, etc. Very frustrating. Would not recommend (GL) and I tell everyone to avoid them like the plague.”

Former roommate allegedly used in scam

Poor service was but one of GL’s recent failings, judging from its legal woes. The SEC complaint states that “at some point in time … GL became unprofitable and began losing money.” In early 2013, the suit contends, Thibeault began taking money from the GL Beyond Income Fund, of which he served as chairman, president, trustee and sometime portfolio manager, to support his faltering financial advisory businesses.

“His scheme started by taking Fund money and creating paperwork for fictitious loans, the proceeds of which, rather than being paid to bona fide borrowers, were instead transferred to Taft and then transferred by Taft into bank accounts controlled by GL,” the complaint states. Taft Financial Services LLC is another allegedly Thibeault-directed company that, by the SEC’s description, served to support the sham loans ruse.

The suit continues: “To cover up his actions, Thibeault prepared forged promissory notes in the names of real individuals who had never requested nor been provided a loan by the Fund. Thibeault directed the periodic interest payments be made on some of the fraudulent loans to give the appearance that the borrowers were current on the loans. At least some of Thibeault’s ‘interest payments’ on earlier-issued loans were made from a portion of the monies that Thibeault diverted from the Fund by issuing additional fictitious loans.”

According to the suit, purported recipients of the fictitious loans included “numerous friends and associates of Thibeault.”

One was a college roommate. Identified by the initials Z.W., the ex-roommate is said to have received a loan statement in July showing a principal balance of $342,000. The statement apparently was sent inadvertently by GL staff, who had been told by Thibeault that he would handle the Taft loans personally, according to the suit. In a subsequent interview with the FBI, Z.W. said “he had never conducted business with, obtained a loan from or borrowed money from Thibeault,” the suit says.

Whether any names used on the allegedly phony loans were those of current or former clients of GL is unclear. The potential for being drawn into the legal mess, or being in any way connected with the company, makes some uneasy.

Dr. Shellaine Kiser, a veterinarian in Alabama who consolidated loans through Graduate Leverage, said, “It makes me feel a little slimy” — and not a little anxious.

“If my managing company folds, will my loan get sold? Will I lose all my on-time payment incentives and double my interest rate? Mostly, it just makes me nervous that they ever had their hands on my loan — what will go wrong?” Kiser said in an interview by email.

Reviewing her files, Kiser later determined that GL sold her loan a few years ago. It turns out that she may have hit a sweet spot in the timing of her relationship with the company. Kiser recounted:

“At the time, their advice for consolidation was very good — with on-time payment incentives, I have an interest rate of 2.875 percent on the majority of my student loans (down to about $70,000), which I couldn’t possibly come close to matching if I tried to consolidate today. This was, of course, back when GL seemed to be doing everything well and people were happy. I was happy. I never started hearing complaints until classmates and friends started using the Advisor service, and GL never seemed to follow through on things they had promised. By then, I think they had sold my consolidated loan and I wasn’t tied to them anymore — thank goodness!”

Update on March 24, 2015: Accounts previously serviced by GL Loan Servicing are being transferred to First Associates Loan Servicing, according to the text of a "Dear Borrower" letter provided to the VIN News Service by Strasser, attorney for the GL Beyond Income Fund.

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