NEW YORK (Reuters) - A former candidate for governor of Oregon was sentenced to six years in prison on Monday for fraudulently convincing investors he had access to shares of Facebook Inc before its highly anticipated initial public offering in 2012.
Craig Berkman, who ran unsuccessfully for governor in 1994 as a Republican, told investors he would use their money to buy pre-IPO shares in Facebook and other companies like LinkedIn Corp, Groupon Inc and Zynga Inc.
Instead, he used new investor money to pay off earlier investors and to fund his own expenses, including nearly $6 million to help satisfy a settlement with a firm that accused him of failing to pay his debts, U.S. authorities said.
In June, Berkman pleaded guilty in federal court in New York to securities and wire fraud and agreed to forfeit more than $13 million he raised from more than 120 investors, including longtime friends.
“I am sincerely sorry, and I take full responsibility for the negative consequences of my behavior,” Berkman told U.S. District Judge Shira Scheindlin at his sentencing on Monday.
The sentence was less than the 97 months suggested by federal sentencing guidelines but more than the 24 months Berkman’s attorney had requested.
Berkman, a businessman and the former head of the Oregon Republican Party, will also be required to make restitution of approximately $11 million, according to prosecutors.
Facebook’s IPO, one of the largest in history, generated several scams by individuals claiming to have access to the coveted pre-IPO shares.
Berkman’s fraud was similar to that of former Florida fund manager John Mattera, who defrauded investors of $13 million and was sentenced to 11 years in prison in June.
Berkman lost a primary election in 1994. He also considered a second bid for governor in 2002, according to The Oregonian newspaper.
In 2001, the Oregon Division of Finance and Securities issued a cease-and-desist order and a $50,000 fine against Berkman for offering and selling convertible promissory notes without a brokerage license, according to the Securities and Exchange Commission.
In 2008, an Oregon jury found Berkman liable in a private action for breach of fiduciary duty, conversion of investor funds and misrepresentation to investors, related to his involvement with a firm called Synectic Ventures.
Synectic Ventures filed an involuntary bankruptcy petition against him for debts he failed to pay related to an earlier judgment against him, the SEC said. Berkman reached a settlement with Synectic and used some of the money he collected from his Facebook fraud to pay the claims.
The criminal case is U.S. v. Berkman, U.S. District Court, Southern District of New York, No. 13-732.
Reporting by Joseph Ax; Editing by Dan Grebler