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SEC charges financier with stealing funds of Facebook pre-IPO shares
by Joseph Earnest March 19, 2013
Newscast Media WASHINGTON—The Securities and Exchange Commission today announced charges against a financier masquerading as a sophisticated fund manager who defrauded investors seeking to acquire highly coveted pre-IPO shares of Facebook and other social media companies.
An investigation by the SEC's Enforcement Division found that Craig Berkman, a former Oregon gubernatorial candidate who now lives in Florida, touted to investors that he had special access to scarce sources of pre-IPO stock in Facebook, LinkedIn, Groupon, and Zynga. Instead of purchasing shares on investors’ behalf as promised, Berkman misused their investments to make Ponzi-like payments to earlier investors, fund personal expenses, and pay off claims against him in a bankruptcy case.
The SEC's Enforcement Division also charged John B. Kern of Charleston, S.C., for his participation in the fraud as legal counsel to some of Berkman’s companies. When investors in Berkman’s phony Facebook fund began questioning what happened to their money after Facebook’s IPO occurred, Kern falsely assured them that their money was used to purchase pre-IPO Facebook stock being held for them by unnamed counterparties.
"Berkman blatantly capitalized on the market fervor preceding highly anticipated IPOs of Facebook and other social media companies to fleece investors whose cash flow he treated like an ATM to fund his own living expenses and pay court-ordered claims to victims of his past misdeeds," said Andrew M. Calamari, Director of the SEC's New York Regional Office.
Click here to read or download SEC order. (pop-up)
According to the SEC's order instituting administrative proceedings, Berkman raised at least $13.2 million from 120 investors by selling membership interests in limited liability companies that he controlled. Berkman defrauded investors in three different sets of offerings. He falsely told the first set of investors he would use their money to acquire pre-IPO shares of several social media companies. He misled the second set of investors into believing that their money would be used to purchase pre-IPO shares of Facebook or acquire a company that held pre-IPO Facebook shares. In the third offering, Berkman falsely told investors that he would use their money to fund various new large-scale technology ventures.
The SEC's order alleges that Berkman and his affiliated entities committed and caused violations of the antifraud provisions of the federal securities laws, and that Kern caused and aided and abetted the violations. Add Comments>>
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