Fraudulent investment funds purporting to give the public
an opportunity to acquire pre-IPO shares of potentially hot stocks such as
Facebook have been front and center in the District Court in Manhattan in
recent days. In one case a former Oregon gubernatorial candidate and securities
law recidivist pleaded guilty while in the other a Florida businessman was
sentenced to prison. In both cases investors lost millions of dollars.
The first centered on a scheme orchestrated by Craig
Berkman, a one time aspiring political figure. Over a period of about two years
beginning in 2010 Mr. Berkman raised an estimated $13.2 million from over 120
investors for three fraudulent investment schemes.
Ventures Trust LLCs:
Investors were told these entities held large quantities of pre-IPO shares of
Facebook, Groupon, LinkedIn, and Zynga. In fact they did not. One entity did
have a small, indirect interest in pre-IPO shares of Facebook.
Face-Off Acquisitions, LLC:
This entity, investors were told, would use the funds to purchase an existing
special purpose vehicle that owned a significant stake in Facebook. The
representation was false.
Assensus Capital Investors, LLC: In
this scheme investors were lured to provide funding for what they were told
would be an investment in various start-ups, including technology, medical
device and energy companies. Investor funds were supposedly secured in part by
interests in pre-IPO shares of Facebook. The claims were false.
In fact Mr. Berkman misappropriated much of the money raised
from investors. These was not the first such schemes in which Mr. Berkman has
been involved. Previously, the Oregon Division of Finance and Securities issued
a cease and desist order against him and imposed a $50,000 for selling
securities without a license. Later an Oregon jury found him liable in a
private action for breach of fiduciary duty, conversion of investor funds and
Now Mr. Berkman has pleaded guilty to one count of
securities fraud and one count of wire fraud. He is scheduled for sentencing on
October 1, 2013. U.S. v. Berkman, No. 13-mg-00732 (S.D.N.Y.). The SEC
has a parallel action pending. In the Matter of Craig Berkman, Adm.
Proc. File No. 3-13249 (Filed March 19, 2013).
In the second case, Florida businessman John Mattera was
sentenced to serve 11 years in connection with a fraudulent investment fund
scheme tied to pre-IPO shares of stocks like Facebook. He had previously
pleaded guilty to securities and wire fraud charges. U.S. v. Mattera, 1:12-cr-00127
From 2010 through 2011 Mr. Matteria served as Chairman of
the Advisory Board of Praetorian Global Fund Ltd., a mutual fund. In that
capacity he was responsible for the investment decisions.
Beginning in the late summer of 2010 Mr. Mattera and
others offered investors the opportunity to purchase shares in special purpose
entities related to the Praetorian. Those vehicles supposedly owned pre-IPO
shares of companies such as Facebook and Groupon. Based on these
representations about $11 million was raised. Investors were assured that their
funds would be held in escrow until after the IPOs.
In fact the representation were false. Most of the
investor money was transferred to other entities with which Mr. Mattera was
associated. About $4 million was spent by Mr. Mattera for personal items. The
SEC has a parallel case pending. SEC v. Mattera, Civil Action No.
11-cv-8323 (S.D.N.Y. Filed Nov. 18, 2011).
For more commentary on developing securities
issues, visit SEC Actions, a blog by Thomas
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