Ex-Oregon governor candidate charged in Facebook IPO fraud

Tue Mar 19, 2013 5:25pm EDT
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By Bernard Vaughan

NEW YORK (Reuters) - A former Oregon gubernatorial candidate was arrested on Tuesday for his alleged role in defrauding investors who had hoped to buy shares of Facebook Inc before its initial public offering in May 2012, federal authorities said.

Craig Berkman, 71, falsely told investors he had access to scarce pre-IPO shares of Facebook and other social media companies such as LinkedIn Corp, Groupon Inc and Zynga Inc, the U.S. Securities and Exchange Commission said in a statement.

But instead of buying shares for investors as promised, Berkman made "Ponzi-like" payments to earlier investors and funded personal expenses, including costs in a bankruptcy case, according to the SEC, which filed a civil case.

The defendant received at least $8 million from various schemes, according to U.S. Attorney Preet Bharara in Manhattan, which filed criminal charges against Berkman.

"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 Calamari, director of the SEC's New York office.

Berkman was arrested at his home in Odessa, Florida, and appeared briefly before a federal magistrate in Tampa, Florida. A bond hearing was scheduled for Thursday in Tampa.

The Manhattan U.S. Attorney's Office charged Berkman with two counts of securities fraud and two counts of wire fraud. Each count carries a maximum of 20 years in prison.

In one allegation, more than 50 investors sent $4.6 million into a bank account controlled by a Berkman entity called Ventures Trust II, according to the complaint filed by the Manhattan U.S. Attorney's Office.   Continued...

A man walks away from the St. Regis hotel reading information regarding investing in the upcoming IPO of Facebook in New York May 10, 2012. REUTERS/Lucas Jackson