Florida Investment Fund Manager Pleads Guilty In Manhattan Federal Court In Connection With $13 Million Securities Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CRAIG L. BERKMAN pled guilty today in Manhattan federal court to securities fraud and wire fraud in connection with a more than $13 million scheme to defraud investors through false ownership claims of stock in Facebook, Inc. (“Facebook”); Groupon, Inc. (“Groupon”); LinkedIn, Inc. (“LinkedIn”); and Zynga, Inc. (“Zynga”) before their respective initial public offerings, and in other private companies. BERKMAN was arrested in March 2013 in connection with the scheme, and pled guilty today before United States Magistrate Judge Kevin Nathaniel Fox.
Manhattan U.S. Attorney Preet Bharara stated: “Through various misrepresentations, Craig Berkman enticed investors with highly coveted investment opportunities, and then swindled them out of millions of dollars, using much of it for his personal benefit. Today’s guilty plea ensures that he will be held to account for his conduct.”
According to the charging instruments in this case and statements made in open court today at the plea proceeding:
From 2010 until his arrest in March 2013, BERKMAN served as the managing member of a series of limited liability companies, which he effectively controlled, including Face-Off Acquisitions, LLC; Assensus Capital, LLC; and several LLCs with variations of the words “Ventures Trust” in their names (the “Ventures Trust LLCs”). Beginning in about October 2010, BERKMAN and others offered investors the opportunity to purchase units of each of these LLCs. In doing so, BERKMAN misrepresented to investors that the LLCs either owned or would soon acquire pre-initial public offering shares in various technology companies, including Facebook, Groupon, LinkedIn, and Zynga. BERKMAN also misappropriated millions of dollars of investor funds for his own use and benefit.
The ways in which BERKMAN carried out his scheme often varied with each of the LLCs. In one instance, BERKMAN represented to investors that various Ventures Trust LLCs held large quantities of pre-IPO shares of Facebook, Groupon, LinkedIn, and Zynga. In fact, the Ventures Trust LLCs held no shares of Groupon, LinkedIn, or Zynga, and held only a small, indirect interest in pre-IPO Facebook shares. In another example, BERKMAN falsely told investors with Face-Off Acquisitions, LLC that their money would be used to purchase an existing special purpose vehicle, which already held a significant stake in Facebook. BERKMAN also misrepresented to Assensus Capital Investors, LLC investors that he would use their money to fund various start-ups, including technology, medical device, and energy companies, and that the investors’ funds would be partially secured by interests in pre-IPO Facebook stock. In fact, BERKMAN misappropriated most, if not all, of the investors’ money for his own use and benefit.
Ultimately, BERKMAN raised at least approximately $13.2 million in funds from more than 120 different investors, which he used for various unauthorized purposes. BERKMAN used approximately $6 million in stolen investor funds to pay off creditors in his personal bankruptcy, and in doing so, he misrepresented the source of those funds to the Bankruptcy Court. BERKMAN also used approximately $4.8 million of new investor money to pay off earlier investors, and spent approximately $1.6 million on legal fees, travel, other personal expenses, and in cash withdrawals, among other things.
BERKMAN, 71, of Odessa, Florida, pled guilty to one count of securities fraud and one count of wire fraud. He faces a maximum sentence of 20 years in prison on each count, a fine of the greater of $5 million or twice the gross gain or gross loss from the offense on the securities fraud charge, and a fine of a lesser amount on the wire fraud charge. In connection with his guilty plea, BERKMAN agreed to pay restitution to the victims of his offenses and consented to forfeit approximately $13.2 million. He will be sentenced before U.S. District Court Judge Shira A. Scheindlin on October 1, 2013.
Mr. Bharara praised the work of the Criminal Investigators of the U.S. Attorney’s Office and the United States Postal Inspection Service, which jointly investigated this case. He also thanked the U.S. Securities and Exchange Commission.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell and Matthew L. Schwartz are in charge of the prosecution.