SEC Files Securities Fraud Charges Against Venture Capitalist for Stealing Investor Funds

The Securities and Exchange Commission (SEC) recently charged a former Oregon gubernatorial political candidate and his lawyer with operating an investment scam selling pre-IPO shares of Facebook, LinkedIn, Groupon, and Zynga.

The SEC charged Craig Berkman, a Portland venture capitalist, with the facilitation of securities fraud of at least 120 investors. Berkman allegedly operated an $8 million securities fraud scheme out of the state of New York and was arrested in his Odessa, Florida home last month. He is currently charged with two counts of securities fraud and two counts of wire fraud. Each count carries a maximum sentence of 20 years in prison.

Prosecutors say that from October 2010 to September 2012, Berkman received around $13.2 million by selling membership interests in limited liability companies that he controlled. He made false statements to potential investors, assuring them that their money would be used to purchase pre-IPO shares of social media website companies like Facebook, LinkedIn, Groupon and Zynga. The government also says Berkman operated a private company from 2010 to 2012 called Ventures Trust II LLC.

According to the SEC’s filing, Berkman lured investors in by telling them that he had unique access to pre-IPO stocks in high-tech or social media companies that were on the verge of going public. Once Berkman received payment for the non-existent stocks, he misused the money in multiple ways. For instance, he spent over $5 million of the investors’ money paying off a bankruptcy judgment which was previously entered against him by Synectic Ventures, along with another $4.8 million to satisfy investors who had previously provided him with money for either this pre-IPO scheme or other schemes run in the past. Berkman also used $1.6 million of his investors’ money to fund personal expenses, including several massive cash withdrawals, lavish dining and travel expenses.

Berkman has a history of securities fraud violations that stretches back to 2001. The SEC’s Order Instituting Administrative and Cease-and-Desist Proceedings shows that in June 2008, an Oregon jury entered a $28 million judgment against Berkman for breach of fiduciary duty, misrepresentation and conversion in connection with the company Synectic Ventures. Subsequently, Synectic filed an involuntary bankruptcy petition against Berkman that was ultimately settled.

The SEC’s Enforcement Division also charged John B. Kern of Charleston, S.C., for his participation in the securities fraud. Kern served as legal counsel for several of Berkman’s companies. He also aided and abetted the fraud by making “certain material misstatements to investors that he knew or recklessly disregarded were false and misleading,” the SEC charged. Once the investors in Berkman’s fraudulent Facebook fund began asking questions about their money after the Facebook IPO occurred, Kern falsely assured them their money was specifically used to purchase pre-IPO Facebook stock. Kern also guaranteed the investors that their stocks were safely being held 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.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Lawyers and others who help shady operators commit fraud in the securities markets will be held accountable for their supporting roles. Kern was duty-bound to look out for investors’ best interests, but instead he was actively colluding with Berkman to prevent investors from discovering the fraud.”

In an additional action, the United States Attorney’s Office for the Southern District of New York also announced they will be filing criminal charges against Berkman.

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By | 2018-09-24T14:43:28+00:00 April 3rd, 2013|Healthcare Fraud|