Wednesday, April 3, 2013

SEC Charges Financier with Stealing Investor Funds in Purported Offerings of Pre-IPO Facebook Shares

The SEC 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 the financier, 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, the financier 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 another man of Charleston, S.C., for his participation in the fraud as legal counsel to some of the financier’s companies. When investors in the financier phony Facebook fund began questioning what happened to their money after Facebook’s IPO occurred, the other man falsely assured them that their money was used to purchase pre-IPO Facebook stock being held for them by unnamed counterparties.

“[The financier]  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.