Craig Berkman, who once ran for governor of Oregon, was arrested and charged with securities fraud for selling interests in non-existent pre-IPO shares of Facebook Inc. (FB:US) to investors.
Berkman, 71, was arrested yesterday at his home in Odessa, Florida, and charged by federal prosecutors in New York with making at least $8 million in two separate schemes, Manhattan U.S. Attorney Preet Bharara said in a statement yesterday.
Berkman is charged with two counts of securities fraud and two counts of wire fraud. Each of the counts carries a maximum sentence of 20 years in prison, according to Bharara.
Berkman appeared in federal court in Tampa yesterday, where U.S. Magistrate Judge Thomas G. Wilson set a bail hearing for March 21, according to court records. Adam Allen, a federal public defender who represented Berkman in the Tampa court appearance, didn’t immediately return a voice-mail message yesterday seeking comment on the charges.
Berkman, a Republican, ran for governor of Oregon in 1994. He lost his party’s primary election to former U.S. Congressman Denny Smith, who then lost the general election to Democrat John Kitzhaber.
Prosecutors claim that in 2010, Berkman set up a company called Ventures Trust II LLC, telling investors it held shares in Facebook, the world’s biggest social network, which was then privately held. In reality, the fund held only a small, indirect investment in Facebook through another investment fund, according to a criminal complaint against Berkman that was unsealed yesterday. Berkman used Ventures Trust II to fraudulently raise $5.5 million from investors, prosecutors said.
In a related scheme, Berkman created Face Off Acquisitions LLC and told investors in 2012 that its purpose was to acquire another company that held 1 million pre-IPO Facebook shares. Face Off never acquired the company, according to the complaint.
Prosecutors said Berkman was forced into bankruptcy in 2009 by creditors who won a civil suit claiming he’d taken their money in an earlier fraud. Berkman later used much of the money raised in the Ventures Trust II and Face Off frauds to fund a $4.75 million settlement reached for the benefit of victims of the earlier fraud, according to the government.
Berkman was also charged yesterday in an administrative proceeding by the U.S. Securities and Exchange Commission. The SEC claimed Berkman raised at least $13.2 million from 120 investors by selling shares in limited liability companies he controlled.
The SEC claimed Berkman told investors he had access to pre-IPO shares of Facebook, LinkedIn Corp. (LNKD:US), Groupon Inc. (GRPN:US) and Zynga Inc. (ZNGA:US) While he promised to buy shares of the companies on behalf of investors, he used their money to pay off earlier investors, pay his personal expenses and to pay the creditors in the bankruptcy case, according to the SEC administrative complaint.
The SEC also filed administrative charges against John B. Kern, 49, a Charleston, South Carolina, lawyer who represented some of Berkman’s companies, according to the agency. Kern, who wasn’t charged in the criminal case against Berkman, didn’t immediately respond to a phone message seeking comment on the SEC allegations after business hours.
In October, John Mattera, another Florida man, pleaded guilty in a different scam to sell non-existent shares in Facebook and Groupon. In a plea agreement with prosecutors, Mattera agreed that U.S. sentencing guidelines, which aren’t binding, call for him to receive from 10 to more than 12 years in prison when he’s sentenced June 7. Mattera operated Praetorian Global Fund Ltd.
The criminal case is U.S. v. Berkman, 13-mj-00732, U.S. District Court, Southern District of New York (Manhattan). The SEC proceeding is Matter of Craig Berkman d/b/a Ventures Trust LLC, 3-15249, U.S. Securities and Exchange Commission (Washington).
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