Compliance
South Carolina Man Charged By SEC Over Fake Facebook Fund Scheme
The Securities and Exchange Commission has announced charges against a financier - who the authority alleges posed as a “sophisticated fund manager” - for defrauding investors seeking to acquire pre-IPO shares of Facebook and other social media firms.
The SEC’s division of enforcement alleges that Craig Berkman of Charleston, SC, touted to investors that he had access to scarce sources of pre-IPO stock in Facebook, LinkedIn, Groupon and Zynga. However, rather than purchase the shares on investors’ behalf, Berkman used their investments to make “Ponzi-like payments” to previous investors, fund personal expenses and pay off claims against him in a bankruptcy case.
Meanwhile, the authority has also charged John Kern for his participation in the fraud as legal counsel to some of Berkman’s firms.
“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,” the SEC said.
According to the SEC, Berkman raised at least $13.2 million from 120 investors by selling membership interests in limited liability companies that he controlled. The US Attorney’s Office for the Southern District of New York has announced criminal charges against Berkman.
As well as falsely telling investors that he would use their money to buy pre-IPO shares of several social media companies, Berkman also falsely told investors that he would use their money to fund various new large-scale technology ventures, the SEC said.
The SEC’s order claims that Berkman and his affiliated entities committed and caused violations of the anti-fraud provisions of the federal securities laws. Meanwhile, Kern “caused and aided and abetted the violations,” the authority said.
It added: “The administrative proceedings will determine whether a cease-and-desist order should be issued and what, if any, remedial action or financial sanctions are appropriate and in the public interest.”
