(Bloomberg News) A Boston hedge-fund manager and his son will pay $4.8 million to settle U.S. regulatory claims that they lured customers with a fabricated track record before investing with other funds, including Bernard L. Madoff's fraud.

Gabriel Bitran, 66, founded GMB Capital Management LLC in 2005 and with his son Marco Bitran raised more than $500 million over a three-year period, the Securities and Exchange Commission said in an administrative order filed today. The two men, who resolved the claims without admitting or denying wrongdoing, also agreed to be barred from the securities industry.

"The Bitrans solicited investors by touting an impressive track record and a unique investment strategy," David Bergers, head of the SEC's Boston office, said in a statement. "They lied about both."

To market their fund, the Bitrans created performance records dating from 1998 that showed annualized returns of as much as 16.2 percent with no down years, the SEC said. They told investors the records were based on actual trading using Gabriel Bitran's optimal-pricing models when they were actually based on hypothetical historical investments, according to the order.

Customers were misled to believe their money would be invested using the quantitative strategy when in reality certain GMB hedge funds were just investing in other hedge funds, the SEC said. GMB didn't disclose to clients that they suffered significant losses after their money was invested in frauds including Petters Group and Madoff's Ponzi scheme, the SEC said.

Nicholas Theodorou, an attorney for Gabriel Bitran at Foley Hoag LLP, and Mark Pearlstein a lawyer for Marco Bitran and GMB at McDermott Will & Emory LLP, said their clients are pleased to have reached a settlement with the SEC and to have put the matter behind them.

GMB told investors in November 2008 that it was winding down a fund that had invested with Madoff through Tremont Group Holdings. GMB said in a January 2009 letter to investors that it was discontinuing investments with outside managers and instead concentrating on the trading strategy created by Gabriel Bitran, who is a professor at the Massachusetts Institute of Technology's Sloan School of Management, according to the university's website.

Madoff, 73, is serving a 150-year sentence in a federal prison in North Carolina for running a Ponzi scheme that defrauded investors of an estimated $20 billion in principal.

Minnesota businessman Thomas Petters was sentenced in 2010 to 50 years in prison for running a $3.5 billion fraud scheme in which he told investors he would finance the purchase of consumer-goods shipments. Prosecutors said Petters used one of his companies to support his money-losing businesses and lavish personal lifestyle.